Surplus Target and Corporation Tax

Debate between George Osborne and Rachel Reeves

Monday 4th July 2016 Commons Chamber

[Mr Osborne]

We have to be realistic about the economic shock that the referendum result has created, which is acknowledged not just by the Bank Governor but by many independent forecasters—it is reflected in the financial markets. It will have an impact on the public finances, which will partly be cyclical, but also partly structural. In the end, a structural deficit—my hon. Friend, who is a good fiscal conservative, will know this—needs to be addressed through either reduced spending or higher taxes over time. Obviously, as a Conservative, I tend to look at the spending solution rather than the tax one, but that is what happens when there is a structural deficit, as we know to our cost in this country. Let us wait for the OBR to make its assessment in the autumn, then we can collectively decide how to proceed.

[Rachel Reeves (Leeds West) (Lab)]

The OBR says that cuts in corporation tax have so far had no discernible impact on either business investment or growth. Indeed, in the latest forecast, despite cuts to corporation tax, business investment was revised down. I urge the Chancellor to look instead at helping small businesses or investing in infrastructure rather than going ahead with further cuts in corporation tax, which so far seem to have made no difference.

[Mr Osborne]

I am all for supporting small businesses, which is why we have a package of rates relief in the Budget. I am all for making the big transport investments, which this country has, frankly, not done for a generation. That is why I support High Speed 2 and indeed High Speed 3, as well as a new runway in the south-east of England.

The OBR has revised up its economic forecast for business investment when we have introduced corporation tax cuts, so it draws a link between the two. A study on the long-term impact of our corporation tax cuts so far suggests that they have seen an increase in our long-run GDP of 1.3%, which is the equivalent of £24 billion in today’s prices.

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 7th June 2016 Commons Chamber

[Mr Osborne]

My hon. Friend raises an important issue. In recent years there has been a focus on economic development in the big cities of the north, but we now want to support the counties and county towns of the north of England. In the area that she represents so well we have the new growth deal for the Preston, South Ribble and Lancashire city deal area. We are looking to devolve more economic powers to counties so that they too can see the benefits of securing economic growth. My door is always open to good, sensible proposals for investment in the counties of the north of England.

[Rachel Reeves (Leeds West) (Lab)]

The Chancellor speaks about investment in transport and in flood defences, both of which are crucial in my city of Leeds. Yet last month the Government cancelled the Leeds trolleybus scheme, and in 2011 flood defences were cancelled in Leeds, which contributed to the flooding we saw in December. Earlier this year the Government announced some money for flood defences, but it was just a fraction of what was cancelled five years ago, so I am surprised by the complacency of the hon. Member for Pudsey (Stuart Andrew), and ask the Government to invest properly in flood defences in our city.

[Mr Osborne]

The hon. Lady is being a little churlish. We committed £6 billion to investment in transport in Humberside and Yorkshire, the area that her constituency is in. Specifically on flood defences, she raised on the Floor of the House very specific schemes that she wanted me to fund. I funded those in the Budget. As she well knows, the future phases do not yet have plans or a price tag, but I have said that in principle we are committed to those as well. If she works with us we will deliver those schemes, which of course were never delivered under a Labour Government.

Budget Resolutions and Economic Situation

Debate between George Osborne and Rachel Reeves

Tuesday 22nd March 2016 Commons Chamber

[Mr Osborne]

I will tell you what is unfair: to saddle the next generation with debts you have no way of paying off. That is what the right hon. Lady did. [Interruption.] That is what she did. I will come on specifically to disability benefits, but let me tell her about fairness and what we have done over the last six years. We have taken action that means 500,000 fewer children are growing up in workless households than when she was at the Treasury, 1 million fewer people are on out-of-work benefits and over 2 million more people are in work than when we came to office. That is the social justice record we on this side of the House are proud of.

I am also proud that the work continues, and in this Budget we are taking further steps to build a stronger society. There is money and reform to improve our nation’s schools. There is action to reduce sugar intake and give our children better healthcare. There is support for the savings of low-income families. There is more help and housing for homeless people. There are personal allowance increases that will lift another 1 million of the low-paid out of income tax altogether, and there is an increased minimum wage ahead of the introduction of the first ever national living wage in just two weeks’ time. Those are all in the Budget we will debate today—all the actions of a compassionate, one nation Conservative Government determined to deliver both social justice and economic security.

[Rachel Reeves (Leeds West) (Lab)]

The new Secretary of State for Work and Pensions said yesterday, in his first statement, that the Government would not be making any further cuts to welfare during this Parliament, but later on he said that there were “no plans” to make further cuts to welfare during this Parliament. Will the Chancellor now confirm, for the sake of disabled people and others, that there will be no further cuts to the welfare budget in this Parliament?

[Mr Osborne]

Yesterday, my right hon. Friend the Secretary of State gave exactly the Government’s position, which is that,

“we have no further plans to make welfare savings beyond the very substantial savings legislated for by Parliament two weeks ago, which we will…now focus on implementing.”—[Official Report, 21 March 2016; Vol. 607, c. 1268.]

I will now address the specific issue of welfare savings and disability, but I should have thought that the hon. Lady, when she got to her feet, might have thanked the Government for delivering the flood defence schemes that she asked for for her city, and which were in the Budget statement a week ago.

Let me turn to the disability benefits. We are proud that this Government are providing more support to the most disabled people. It was very clear that while the reforms proposed to personal independence payments two weeks ago drew on the work of an independent review, they did not command support. We have listened, and they will not go ahead. Even if they had, this Government are spending more on disabled people than the previous Labour Government ever did.

People have asked what this means for future support for disabled people, for our welfare cap and for the numbers in the Budget. Let me directly address all three points.

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 19th January 2016 Commons Chamber

[Mr Osborne]

I think that it will help to promote home ownership, because it will mean that there is a more level playing field between an owner-occupier who wants to buy a house, a first-time buying family and a buy-to-let landlord. There is nothing wrong with people investing in property, but there should be a level playing field so that we reverse the decline in home ownership in our country.

[Rachel Reeves (Leeds West) (Lab)]

A long-term economic plan means supporting small businesses across the country. On 26 December, 250 businesses in my constituency that employ 2,500 people were inundated by floodwater. Will the Chancellor take this opportunity to commit to a full flood defence scheme in Leeds so that this sort of disaster cannot happen to businesses in my constituency again?

[Mr Osborne]

I certainly commit to looking personally at what can be done to improve flood defences in Leeds. The Environment Agency and the Government are conducting a review after what was the highest level of rainfall in Yorkshire in modern history. Of course, having committed the additional £2 billion to flood investments, we are able to afford these things. We would not be able to afford any of this sort of thing if we had wrecked the economy like the last Government did.

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 10th September 2013 Commons Chamber

[Mr Osborne]

Of course, the key thing about social security and welfare is that it should encourage people into work. One of the remarkable achievements of my right hon. Friend the Secretary of State for Work and Pensions is that the number of workless households is now at a record low in this country. That is a huge achievement. Since the Opposition have been raising all these questions about living standards and wages, perhaps they would like to hear what the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), a member of their shadow Cabinet, has been saying. He said:

“From 2004 onwards…families on ‘median incomes’—millions of workers—…were feeling the strain…people were working just as hard as ever—but were not getting on”.

He presented his findings to the Cabinet in 2010 but they got buried:

“We picked it up too late. It was very late in the day, is the truth”.

[Rachel Reeves (Leeds West) (Lab)]

The truth is that working families have paid the price for the three years of flatlining under this Chancellor. Prices have risen faster than wages for 37 of the 38 months that he has been in office. I have a quiz question for the Chancellor this morning. Can he tell the House which one of those 38 months is the odd one out and why?

[Mr Osborne]

First, may I welcome the hon. Lady back and congratulate her and her husband Nick on the birth of their baby, Anna?

There has been wage restraint in the public sector, but I thought that, as shadow Chief Secretary, the hon. Lady supported that. When she gave her speech about fiscal discipline before going on maternity leave, she supported wage restraint in the public sector. I am not clear whether she has changed her policy.

[Rachel Reeves]

The right hon. Gentleman obviously does not get the bonus point. He might find the truth embarrassing, but I must tell the House that the only month in which real wages rose was the month when bank bonuses soared by 80%, as the highest paid took advantage of his tax cut for millionaires. Rather than cutting taxes for the richest, why does he not help families facing the cost of living crisis on his watch?

[Mr Osborne]

When the shadow Chancellor was the City Minister, bank bonuses were £14 billion a year. They are now a fraction of that. Indeed, the income tax rate in every year of this Government is higher than in any year of the previous Government. By the way, inequality is now at its lowest level in this country since 1986. We have taken difficult decisions and tough action to ensure that our economy turns the corner. All those things were opposed by the Labour party, but as a result, because of low mortgage rates, because of the large tax-free allowance and because we are creating jobs in the economy, we can hold out the prospect of an improvement in the long-term living standards of the British people.

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 29th January 2013 Commons Chamber

[Mr Osborne]

Yes I can. Again, it is an inconvenient truth that we are spending billions of pounds more on capital spending than was setout in the Budget that half of them opposite, who were in Parliament before the last election, voted for. We are making those choices: they oppose everything because they have nothing to offer in this place.

[Rachel Reeves (Leeds West) (Lab)]

That is an incredibly complacent answer from the Chancellor. Does he not agree with the Deputy Prime Minister that the coalition Government in fact cut capital spending in infrastructure projects too far and too fast, and that this has hampered growth and the economic recovery?

[Mr Osborne]

We are spending more on capital than the plan set out by my predecessor, the right hon. Member for Edinburgh South West (Mr Darling)—the plan that the shadow Chancellor voted for. We have increased capital spending in the 2010 spending review and increased it in autumn statements since. That is why we are spending more money on roads, and it is completely hypocritical for the Labour party to complain about capital spending cuts that would have been deeper if they had stayed in office.

[Rachel Reeves]

It is simply not correct to say that the Government have matched the plans of my right hon. Friend the Member for Edinburgh South West. The Office for Budget Responsibility says that in the first three years this Government are spending £12.8 billion less on infrastructure than the plans that they inherited. It is £6.7 billion lower in this year alone. But if the Chancellor and Deputy Prime Minister are now so concerned about the shrinking economy, why do they not listen to the advice the International Monetary Fund gave them last week and use the Budget in March to rethink their failed economic plan?

[Mr Osborne]

I do not think that the hon. Lady is being completely straight with the House about the numbers she is using—[Hon. Members: “Withdraw.”]

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 11th December 2012 Commons Chamber

[Mr Osborne]

I have to say that the reaction to the autumn statement from the business organisations of Britain was very positive. It was warmly welcomed because we are maintaining control of the public finances, which is a prerequisite for stability and recovery, and because we are taking steps to cut the corporation tax rate and increase the annual investment allowances. I still do not know whether Labour supports the cut in corporation tax. Its Front Benchers have been sending out confused messages on that over the past couple of days. Perhaps we will hear from the shadow Chancellor when he gets to his feet.

[Rachel Reeves (Leeds West) (Lab)]

The Chancellor knows that business success is key to getting our economy growing, to getting the deficit down and to creating jobs. Will he therefore tell us what was the judgment of the Office for Budget Responsibility on the impact on growth of the measures that he announced in the autumn statement last week?

[Mr Osborne]

The Office for Budget Responsibility said that there was a measurable impact on growth in the short term, and of course we have to pay for this in the long term, so it has taken that into account. I have always said that we want to improve the long-term supply potential of the British economy, and one of the most encouraging signs is that the UK, which was becoming a less and less competitive place to do business, is now back in the world’s top 10 competitive economies.

[Rachel Reeves]

I am not surprised that the Chancellor does not want to answer my question, because the OBR’s assessment is that his measures will add just 0.1% to UK gross domestic product by 2018. That must also be set against the fact that growth has been downgraded this year, next year and every year of this Parliament. Is it not the truth that the Chancellor has no plans for jobs and growth, and that that is why the Government are set to borrow an extra £212 billion during the course of this Parliament, breaking the fiscal rules that he gave to this country?

[Mr Osborne]

When the Labour party was in office, its approach led to the economy shrinking by 6% of GDP. We have set in place plans to ensure that the deficit it left us is dealt with and that our economy is more competitive. I would have thought that the hon. Lady would welcome the fact that we have over 1 million new jobs in the economy and a record rate of small business creation. That is something to celebrate in our economy.

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 11th September 2012 Commons Chamber

[Mr Osborne]

I agree that we want to see private sector investment, and tens of billions of pounds of private sector investment is coming into the United Kingdom. Indeed, today the Chinese company Huawei has announced a $2 billion investment in the UK. I absolutely agree with my right hon. Friend. We want to create the low-tax, competitive conditions for the UK economy in which the private sector can grow, but I think he would recognise that there is a role for public money in providing large-scale transport infrastructure, for example, which these companies need to succeed.

[Rachel Reeves (Leeds West) (Lab)]

In a speech yesterday, the Chief Secretary to the Treasury declared that

“infrastructure is at the centre of our strategy to kick-start our economy.”

With that in mind, will the Chancellor tell the House whether the value of orders for infrastructure investment made by the private sector rose or fell between 2010 and 2011?

[Mr Osborne]

For a start, we have just announced £40 billion of additional guarantees for private sector infrastructure. If the hon. Lady wants the figures, £113 billion was invested over the period from 2005 to 2010, and £250 billion of investment for both the private and public sectors has been announced in this Parliament.

[Rachel Reeves]

As the Chancellor will know, there is a difference between announcing something and actually delivering it. The answer to my question is that those orders fell by a fifth, from £7.3 billion in 2010 to £5.9 billion in 2011—a result of the collapse in business confidence that the Chancellor’s disastrous decision to cut too far and too fast has resulted in.

Is it not the truth that next week’s Infrastructure (Financial Assistance) Bill is necessary only in order to create the impression of activity and to distract from this Government’s complete and utter failure to deliver the infrastructure investment that they have been promising and that the country is crying out for?

[Mr Osborne]

There is a difference between announcement and delivery: Labour announced no more boom and bust, and delivered the biggest boom and the biggest bust. We know all about the record of the last Labour Government. One of the quite extraordinary things is that, despite spending and borrowing all that money, they did not actually invest in the modern infrastructure that the private sector needs to create sustainable jobs. That is the lesson that the hon. Lady should learn from their last period in office.

LIBOR (FSA Investigation)

Debate between George Osborne and Rachel Reeves

Thursday 28th June 2012 Commons Chamber

[Rachel Reeves]

Thank you, Mr Speaker. I could not agree more with you about the importance of this issue.

On dealing with those who are responsible, are those responsible in the banks being held accountable, or will this whole thing just return to business as usual? Are criminal investigations progressing, and which law authorities will be leading the conspiracy and fraud cases that might arise? Has the Chancellor reflected on the consequences for competition and has he considered involving the Office of Fair Trading, the Serious Fraud Office or the City of London police? We need to know who knew what and when, and criminal prosecutions should and must follow against anyone who might have broken the law.

Millions of home owners with variable rate mortgages, small businesses with floating loans and consumers who depend on affordable credit could have lost money because of what amounts to a price-fixing scandal. What support will be available for individuals and small businesses who have potentially lost out because of the market fixing and who contact the Financial Ombudsman Service or the bank directly? Is the FSA also investigating the role of the bank’s auditors in tracking and reporting the manipulation of the figures between the rate submitters and the traders involved? What is happening to ensure that other banks that have manipulated markets in a similar way are brought to justice?

Secondly, what is being done to prevent anything like this from happening again? We raised our concerns with Treasury Ministers about the regulation of LIBOR recently. On 6 March, during a debate on the Financial Services Bill about the set of unregulated financial activities that the Chancellor evidently felt should remain unregulated, the shadow Financial Secretary, my hon. Friend the Member for Nottingham East (Chris Leslie), asked the Financial Secretary directly about the

“billions of pounds of trades that are subject to the LIBOR rating”––[Official Report, Financial Services Public Bill Committee, 6 March 2012; c. 359.]—

and why that might need to be regulated. When asked whether he had a view—any view at all—about ending self-regulation, the Financial Secretary to the Treasury had a one word answer: “No.”

The Chancellor made a conscious decision to exclude LIBOR from the Financial Services Bill in its current form, even when he must have known that a massive FSA investigation into precisely that matter was under way. The reputation of the City of London and our financial services sector is at stake. Instead of Ministers’ saying that the Treasury has no view, surely we need swift action to prevent the market abuse? Will the Chancellor urgently revisit his decision not to regulate LIBOR arrangements and instead amend the Financial Services Bill, which is still before Parliament?

Thirdly, a much wider issue is the culture in the City of London. As Bob Diamond said only last year, culture is about

“how people behave when no one is watching,”

but people in his organisation thought they could do anything they liked, just to make a fast buck. They thought they would never be held to account and that they were effectively above the law. We cannot allow Britain to become a place where the privileged and the powerful act according to their own set of moral standards. That is why we are calling for the strongest punishment for those who have broken trust and broken the law, tough regulation to prevent such practices in future and a culture change in our banking industry. We must get our economy working for the majority, not just a few at the top. The Government must act.

[Mr Osborne]

The whole House will be both surprised and disappointed that the shadow Chancellor is not here to account for himself today. He was certainly there every single day while these abuses were taking place, as the City Minister responsible for regulating Barclays and other banks. The hon. Lady says that the Government should do this and that. We are doing all those things; the question is why did the Labour Government not do those things when all this was actually happening?

Let me answer the hon. Lady’s specific questions. She asks whether the individuals responsible will be held to account. Absolutely, and the authorities are carrying out investigations into individuals. She asks whether people who have broken the criminal law will be held to account. That is absolutely what the authorities are looking at but as I have said, the FSA’s criminal powers granted by the previous Government do not extend to criminal sanctions for manipulation of LIBOR. [Interruption.] The hon. Member for Nottingham East (Chris Leslie) asks, “Why is it unregulated?” It is because he did not regulate it—that is why. We are introducing a major Financial Services Bill, which has been through the House of Commons and is going through the House of Lords, to deal with the abuses that happened under the previous Government.

Secondly, the hon. Lady talked about the regulation of LIBOR. Of course the Government have been reviewing LIBOR while awaiting the publication of this report, which we knew was coming. As I have said, we have considered it carefully and we are looking at criminal sanctions for market manipulation. The hon. Lady did not ask about this, but it is an important point so I shall repeat that we are looking at what can happen to the fines levied on companies under the Act passed by the previous Government. Those fines are used simply to reduce the levy that is paid to the FSA by the rest of the financial sector, so the money paid by Barclays would just go to reduce the levy paid by other banks to the FSA. We are considering changing that, looking at whether that is appropriate in all cases and, specifically, whether the fine that Barclays will pay can go to the general taxpayer, who has suffered so much as a result of the failures of the financial system.

Finally, the hon. Lady talked about a culture change in the City and in banking. I completely agree. That is why the Government have introduced very tough new rules on remuneration and the clawback of remuneration, which is what will happen in this case. It is why we asked John Vickers to look at the whole structure of our banking industry, and the Business Secretary and I are implementing reforms that will ring-fence our retail banks to protect them better. It is why we have before Parliament as I speak the Financial Services Bill, which will sweep away the financial regulatory system that failed this country so badly. The Labour party’s trouble is that it is led by the cheerleaders for the age of irresponsibility, but they have yet to say sorry for it.

Eurozone Crisis

Debate between George Osborne and Rachel Reeves

Thursday 27th October 2011 Commons Chamber

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

I wanted to update the House as early as possible on developments in the eurozone overnight, and in the absence of the Prime Minister as he travels to the Commonwealth Heads of Government meeting, to report on the good progress made at yesterday’s European Council.

The crisis in the eurozone has caused instability in financial markets, has greatly undermined confidence around the world, and is having a chilling effect on economic growth in many countries, including our own. It is in our overwhelming national interest that a coherent, comprehensive and lasting solution to the eurozone’s problems is found, because the decisive resolution of this crisis would provide the single biggest boost to the British economy this autumn, and the break-up of the euro would be the single greatest threat to our prosperity.

Our view about how to solve the eurozone’s immediate problems has been clear, consistent and forcefully expressed. The Prime Minister, the Deputy Prime Minister and I have set it out to the House on a number of occasions: reinforcement, recapitalisation and resolution. First, eurozone member states need to reinforce their bail-out fund to create a firewall; secondly, weak European banks need to be recapitalised; and thirdly, the unsustainable position of Greece’s debts needs to be resolved. But if the solution is to last, as I said many months ago, members of the eurozone also need to address the logic of monetary union by pursuing greater fiscal integration within the eurozone, while at the same time we protect Britain’s interests.

We have to improve competitiveness: competitiveness in the peripheral economies of the eurozone as measured against the core economies such as Germany, and competitiveness across the whole European continent versus the rest of the world. This is the solution of the crisis that we have been advocating for months, and the solution again advocated by the Prime Minister at yesterday’s European Council.

Our view is that last night very good progress was made towards solving the immediate crisis—very good progress on all fronts. The deal put together is much better than was expected yesterday afternoon. But much detail remains unresolved, and having put pressure on the eurozone to get this far, we have to keep up the pressure to get the details completed. It has started down the right road; now it must finish the job.

Let me take each element of last night’s deal in turn and say how it affects Britain. First, on recapitalising banks, we are pleased that the European Council agreed to the proposal hammered out by myself and other Finance Ministers at the weekend ECOFIN. All major European banks will be required to hold at least a 9% core tier 1 capital ratio by the end of June next year, including marking to market all their exposure to sovereign debt. The European Banking Authority, based here in London, assessed that achieving this target means that banks will require an extra €106 billion of capital, and the Council yesterday confirmed that if this cannot be raised privately, Governments will have to step up to the plate.

I can confirm to the House today that in the assessment of the European Banking Authority and our own tripartite authorities, no British bank requires additional capital. This is an important expression of confidence in this country’s banking system at a time of global financial stress. EU member states also agreed to co-ordinate guarantees of term funding, should they be required, and we have ensured that state aid rules will be applied properly, and European banks will be restructured if necessary, just as the European Commission demanded of the last British Government two years ago.

While some would have wanted an even tougher banking agreement, and even more capital going into Europe’s weak banks, we should welcome what has been achieved with this agreement. We now have—unlike the totally inadequate stress tests of last year—a commitment to significant extra resources for the European banking system. However, the UK and others insisted that that commitment from the whole of the European Union on banking be conditional on the two other key components of the solution to the crisis that I set out: a reinforced firewall and a resolution of Greek debt. These are both properly matters for the Eurozone, not the UK—and they are both matters on which progress was also made last night.

On Greece, a headline agreement was reached to reduce the Greek debt-to-GDP ratio to 120% by 2020. The eurozone will contribute an additional €30 billion. Because the British Government have made sure that we are not part of the Greek bail-out, none of that extra €30 billion will come from our taxpayers, while private holders of Greek sovereign debt will be asked to accept a nominal write-down of 50%. A lot more work is needed to put all this into practice, including detailed negotiations with the private sector—but we said that Greece’s debts were unsustainable, and we are pleased to see a resolution in sight.

On reinforcing the size of the firewall, the eurozone has set out two options that could operate in tandem. One is to provide, from the bail-out fund, insurance on new debt issued by Eurozone countries; the second is to create special purpose vehicles that can attract resources from private and public investors. In its statement, the eurozone said that

“the leverage effect of both options will vary”

but that they could be

“expected to yield around 1 trillion euro”.

We have always believed that the role of the European Central Bank is critical, and I welcome the positive statement made by Mario Draghi, the incoming ECB president.

Talk of special purpose vehicles has given rise to questions about the involvement of the International Monetary Fund and major shareholders such as the UK. As I have said to the House on many occasions, Britain has always been one of the IMF’s largest shareholders and biggest supporters: we helped to create the institution 60 years ago; the last Government agreed to increase its resources two years ago; and this Government not only ratified that agreement but helped to make the IMF more representative of the new world economy by brokering a deal last year that gave countries such as China and Brazil a greater say, while securing Britain’s seat on the board. The IMF has been an active participant in the packages put together to support Ireland, Portugal and Greece. It has also been active in extending flexible credit lines to Poland and Mexico—neither of which is in the eurozone, of course—as well as supporting other countries in central and eastern Europe such as Hungary, Romania and Latvia. Indeed, it currently has 53 lending programmes around the world, of which only three are in the eurozone.

Supporting countries that cannot support themselves is what the IMF exists to do, and there may well be a case for further increasing the resources of the IMF to keep pace with the size of the global economy. Britain, as a founding and permanent member of its governing board, stands ready to consider the case for further resources and contribute, with other countries, if necessary. Let us remember that support for the IMF does not add to our debt or deficit, and that no-one who has ever provided money to the IMF has ever lost that money. But let me be very clear: we are prepared to see an increase only in the resources that the IMF makes available to all the countries of the world. We would not be prepared to see IMF resources reserved for use only by the eurozone. By all means the IMF can use its expertise and advice to help the eurozone to create the special purpose vehicle that it is considering. By all means let countries with large foreign currency reserves such as China consider putting their own money into the eurozone’s special purpose vehicle—that must be their decision—but the IMF cannot put its own resources in; it can lend only to countries with a programme for adjustment.

I confirm today that Britain will not put its resources in either. We do not have a surplus; we have a large deficit. We have had to use our resources to recapitalise our banks and to stand behind our currency. An active member of the IMF? Yes. Helping the IMF with advice and technical support? Yes. But the IMF contributing money to the eurozone bail-out fund? No. And Britain contributing money to the eurozone bail-out fund? No. That is Britain’s clear position.

We expect eurozone members to use the next few days—the next few weeks, at the most—to provide much more detail about their plans to increase their firewalls and sort out Greek debt. We have made it clear that the sooner that happens, the better it will be for the world economy. We must maintain the momentum.

This package will not on its own resolve the longer-term issues of how to make the euro work more effectively. Those longer-term issues were addressed yesterday, and there were proposals for greater fiscal integration and mutual control over the budget policies of eurozone Governments. I have argued that we need to follow the remorseless logic of monetary union, and that involves a loss of national sovereignty for countries in the eurozone.

It is in Britain’s interest that the euro operates more effectively, provided that the interests of all 27 member states are properly protected in key areas of European policy, such as the single market, competition and financial services. We are insistent that our voice will continue to be heard and our national interests protected. We have found allies among the other 10 members of the EU that are not in the euro. An important marker was put down in Sunday’s European Council conclusions.

No one pretends that sorting out this situation in a satisfactory way will be easy, but it is a necessity. That is the context in which we should approach potential treaty changes. The coalition Government have already proved that they can protect Britain’s interests by getting us out of the previous Government’s involvement in the eurozone bail-outs, holding down the European Union budget increases, and putting into law the guarantee that no further powers or competencies can be transferred to Brussels without the consent of the British people in a referendum. The Government will again protect Britain’s interests as the discussions on a possible limited treaty change begin. We will seek to rebalance the responsibilities between the EU and its member states, which in our view have become unbalanced.

Finally, the euro will not find lasting stability until its peripheral members become more competitive. That means credible plans to reduce budget deficits. That commitment was made in the very first section of yesterday’s agreement. However, that involves difficult decisions on pension ages, business tax rates, welfare reform and educational standards. Britain, thankfully, is not in the euro, but we are taking those difficult decisions at home, because the ultimate lesson of this crisis is that unless a country can pay its way in the world and compete around the globe, it will be next in the firing line. I am determined that our country will never be in the firing line.

[Rachel Reeves (Leeds West) (Lab)]

I thank the Chancellor for coming to the House to make that statement. With the shadow Chancellor in New York, I am responding on behalf of the Opposition, and I have a number of detailed questions. It is good that some agreement has been reached, but with so little detail, many unanswered questions remain. I hope that the Chancellor can help the House today, because whatever happens in the eurozone will have huge ramifications for British families and businesses.

First, on the recapitalisation of the banks, is the Chancellor confident that the deal announced is sufficient and that UK banks do not need further recapitalisation? Will he keep that under review? What estimates has he made of the exposure of UK banks to Greek, Italian, Portuguese and Spanish sovereign debt? Will he confirm that the House of Commons estimates of $3 billion for Greece and $17 billion for Italy reflect the current position for UK banks? Although the agreement states that banks and other creditors are invited to accept a 50% loss on Greek sovereign debt, is the Chancellor confident that the vast majority will agree—and if so, by when?

On the expansion of the European financial stability facility, does the Chancellor believe that the €1 trillion package is sufficient? Does it amount to the “big bazooka” that the Prime Minister talked about earlier this month? Alternatively, will we be back here in a few months’ time, which would mean further uncertainty, undermining confidence, undermining investment and undermining growth? That is the last thing that Britain, or Europe, needs.

Can the Chancellor explain how the leveraging of the EFSF will work, and when he believes the detail of credit enhancement and special purpose vehicles will be finalised? If the EFSF must also fund bank recapitalisation, will it be sufficient to give the markets confidence, and will there be funds remaining to underpin any sovereign debt crisis and prevent further contagion?

Although we have a clear economic interest in the eurozone sorting out its problems, the interests of British taxpayers must be safeguarded. It would have been wrong for Britain to pay twice, both through ongoing temporary EU bail-out funds and through the IMF. If this package is indeed the final and permanent bail-out fund, any British role should be through the IMF alone.

I heard the Chancellor’s question and answer session with himself on the IMF, but will he clarify what he said on the radio this morning? He said that the IMF was not

“going to put additional resources directly into the eurozone, hypothecated for the eurozone.”

Does he believe, though, that there will need to be a further increase in UK contributions to the IMF? Whether he succeeds in persuading it to describe that as anything other than a hypothecated fund is irrelevant.

On the arrangements for future decision making, the agreement states:

“The President of the Euro Summit will keep non euro-area member states closely informed of preparations and outcomes of summits.”

“Closely informed”? Has Britain now been reduced to simply receiving a postcard from Brussels? How will the Chancellor ensure that Britain’s voice, and our vital national interest, is heard loud and clear in future negotiations?

On the forthcoming treaty changes, will the Chancellor admit what the Prime Minister was unable to admit yesterday? Is it now the Government’s policy to seek to repatriate powers as part of those treaty changes? Which ones, and on what timetable?

Finally, is not the missing piece in the agreement the lack of any plan for jobs and growth, which were not mentioned at all in the Chancellor’s statement? Is it not the case that without growth we cannot solve the debt crisis, we cannot solve the banking crisis, and we cannot solve the jobs crisis? At this time, Britain should be leading the charge and pushing for a proper plan for jobs and growth across Europe. But is not the truth that this Chancellor cannot do that? With unemployment at a 17-year high here in Britain, with no growth since last autumn, and with borrowing therefore now set to be £46 billion higher than he planned, he is clinging to an austerity plan that is failing here in Britain.

With the UK economy flatlining since this time last year, before the eurozone crisis of recent months, and with only Greece and Portugal growing more slowly than Britain, is it not time that we had a plan for jobs and growth—across Europe, yes, but here in Britain too?

[Mr Osborne]

I thank the hon. Lady for some of her questions. Of course, we miss the constructive and consensual approach of the shadow Chancellor. We are talking about the Bretton Woods institutions, and it turns out that he is at a place called Buttonwood, which adds to the pantomime feel of Labour’s economic policy.

Let me deal directly with the hon. Lady’s questions. First, of course we keep the capital and liquidity positions of the British banks under constant review. We would do that in the absence of any European agreement, but of course we have also participated in the recent work by the European Banking Authority. We thought it was important that that was done at EU level rather than eurozone level. I repeat what I said in my statement: the EBA and our own authorities confirm that no British bank requires additional capital, which of course is very good news for us all.

On the hon. Lady’s question about getting private sector involvement in the write-down of Greek debt, that is of course one of the key unresolved issues from last night. We now need to see whether the headline agreement reached on behalf of the private sector can be implemented in practice. I am confident that it can, but that is one of the crucial next steps that need to be got on with.

The hon. Lady asked about the exposure of the UK banking system and the UK economy to various peripheral economies of Europe. Those figures are published regularly by the Bank of England. I do not propose to repeat them today, but they are available for everyone to see.

On the question that the hon. Lady asked about the overall fund, €1 trillion is the number that the eurozone has put on its firewall. Of course, some said it should be larger, but it is very significantly larger than what we had yesterday, which we should welcome. As with private sector involvement in the Greek deal, we now need to see the details of how the eurozone will create that leverage. It has set out two options that can work side by side. One is a kind of first loss insurance on newly issued debt, and the second is the special purpose vehicle, by which it hopes to get external private sector investment. Of course, it is openly speculating about getting Chinese money into that.

The IMF can only lend directly to countries, and countries with programmes or agreed and negotiated flexible credit lines, which will remain the case. It cannot lend into that special purpose vehicle. That is also the UK position. We do not think that Britain, with its deficit, can contribute to the special purpose vehicle. If we were to do so, we would add to our debt, and we do not think that that is appropriate. We have had to use our own resources to deal with our own problems in this country.

It is of course crucial that the IMF remains a central economic institution in dealing with the world’s problems, and I urge the hon. Lady, newly appointed as shadow Chief Secretary, to reconsider Labour’s position—[Interruption.] I know that the hon. Member for Nottingham East (Chris Leslie) led the Labour party in Committee to vote against the increase in IMF resources, which the last Labour Prime Minister negotiated at the London 2009 summit. Whatever I have said about the right hon. Gentleman—and I have said quite a few things—I do not think that anyone would doubt that the highlight of his premiership was the negotiation of the London 2009 G20 deal. It is completely astonishing that the Labour party voted against that agreement.

As we discuss over the next few months increasing the IMF’s resources to deal with all the countries of the world, I urge Labour Members to reconsider their position on that, and also their rather odd position on the euro. They seem to be holding out membership of the euro—[Hon. Members: “No!”] Well, that is certainly what the Labour leader was doing at the weekend. To be in the euro but out of the IMF strikes me as a rather bizarre economic policy at the moment.

That brings me to my final point. Britain has been arguing consistently for months that a solution to this crisis requires recapitalising the banks, reinforcing the firewall and resolving the Greek crisis. We have insisted that the appropriate issues are discussed at the level of 27, which is why there have been two European Councils this week, and an ECOFIN. We will continue to argue for Britain’s national interest as we enter the difficult discussions ahead on the potential treaty change, on making the euro work, and above all on getting the growth and jobs that the hon. Lady talks about across Europe and in this country, by making this continent far more competitive and stopping Britain and Europe from pricing themselves out of the world economy.

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 6th September 2011 Commons Chamber

[Mr Osborne]

That is, of course, absolutely what the IMF said in its recent article IV assessment—and we remember the article IV assessments at the end of the previous Labour Government. It asks explicitly whether the UK Government should change their policy, and it says no. That is the advice of the IMF. Last July, the Labour party voted against Britain paying its subscriptions to the IMF. Frankly, I do not think that Labour Members should talk about the IMF in Treasury questions until they agree with paying the subs.

[Rachel Reeves (Leeds West) (Lab)]

If the Office for Budget Responsibility downgrades its forecast for growth for the fourth time when it reports later in the autumn, and revises up its forecast for Government borrowing, would the Chancellor regard that as a success or failure of this Government’s economic policy?

[Mr Osborne]

Of course, the Government want economic growth and prosperity. We want a stable international situation in which we can trade. We have to take account of the fact that major trading partners, such as Germany, France and the United States, have seen either no growth or very limited growth as well. That is the challenge we face. As the right hon. Member for Edinburgh South West (Mr Darling) reminded us at the weekend, we can either have a credible economic policy that takes note of what is going on in the world or, as he put it, we cannot even be at the races.

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 8th February 2011 Commons Chamber

[Mr Osborne]

I can indeed confirm that, and this is one of the great paradoxes at the moment. The plan, which the previous Government all appeared to have signed up to, including the shadow Chancellor—that is, the plan put in place by the last Chancellor of the Exchequer—starts in eight weeks’ time and involves billions of pounds of cuts, amounting to just £2 billion less than what we are planning this year. We have not had any proposals from the Opposition; they have eight weeks to come up with a plan.

[Rachel Reeves (Leeds West) (Lab)]

In Leeds we will lose 11 citizens advice bureaux debt advisers next month because of the cancellation of the financial inclusion fund. Where would the Minister suggest that my constituents who are struggling with debt and excessive and escalating charges from doorstep lenders go for advice?

Bank Bonuses

Debate between George Osborne and Rachel Reeves

Tuesday 11th January 2011 Commons Chamber

[Mr Osborne]

An absolute central part of any settlement we might reach with the banks will be a material and verifiable increase in the amount of lending to British businesses, especially medium and small businesses. [Interruption.] Labour Members mutter, but they secured absolutely nothing for British business when they bailed out the banks. They had the money in their hands to give to the banks, and they secured absolutely nothing in return.

[Rachel Reeves (Leeds West) (Lab)]

A quick glance at today’s newspaper financial pages shows that the share price of RBS is 40p today compared with 52p this time last year, while that of Lloyds was 66p today compared with 64p a year ago. My constituents in Leeds West would not expect bonuses for such performance, so why should taxpayers’ money be used for the bonuses of our nationalised banks?

[Mr Osborne]

The deal that the previous Government signed with RBS as a condition of being part of the asset protection scheme stated that it should not pay bonuses in 2009, but that for the bonuses awarded in 2010—the period we are talking about now—it should pay the market rate. That was the deal that Labour signed up to. I am trying to reduce the RBS bonus pool, and I have made it very clear—as has the Prime Minister—that it should be a back-marker, not a market leader.

Financial Assistance (Ireland)

Debate between George Osborne and Rachel Reeves

Monday 22nd November 2010 Commons Chamber

[Mr Osborne]

I am not proposing to take Britain out of the Maastricht treaty, despite my hon. Friend’s request. I know that will come as a bit of a disappointment. I would like the balance of payments mechanism to remain—it has existed for many years—but of course the situation in the eurozone is not a balance of payments issue. That mechanism is for countries, particularly accession countries, to draw upon. I would like the mechanism set up under article 122 to be used for what it was designed to be used for, which was natural disasters and the like, and I would like the permanent bail-out mechanism for the eurozone not to include the United Kingdom.

[Rachel Reeves (Leeds West) (Lab)]

Although it is imperative that we support Ireland through the crisis, does the Chancellor accept that events in Ireland demonstrate that the global economic recovery is extremely fragile, and that to premise our own recovery on £80 billion of cuts and export-led growth looks increasingly optimistic at best and dangerously naive at worst?

Oral Answers to Questions

Debate between George Osborne and Rachel Reeves

Tuesday 12th October 2010 Commons Chamber

[Mr Osborne]

First, the fall has helped to reduce interest payments, and secondly it has helped many companies during the recovery. It is striking how our market interest rates have fallen since taking the steps that we announced in the Budget. That is not the case in some other countries in Europe that had similar market interest rates to ours at the time of the general election.

[Rachel Reeves (Leeds West) (Lab)]

Does the Chancellor agree that market interest rates were falling before the election? The fall is not due to the Government’s policies—they were falling before.

[Mr Osborne]

I advise the hon. Lady to look at the market interest rates of Spain and the United Kingdom, which were the same at the time of the general election. In Spain, they have hardly fallen at all, but they are 1% lower in the United Kingdom. That is a real boost to businesses.

Financial Services Regulation

Debate between George Osborne and Rachel Reeves

Wednesday 16th June 2010 Commons Chamber

[Mr Osborne]

To be fair to the FSA, it has been rather candid about the mistakes that were made when the shadow Chancellor was the Chancellor and when the former Prime Minister was the Chancellor. We have to learn from those mistakes. As I have told the House, we will set out the details of the institutional arrangements in a parliamentary statement tomorrow.

[Rachel Reeves (Leeds West) (Lab)]

The Chancellor talks about breaking up the retail and investment banks, but the immediate challenge for the Government is the future of the nationalised banks. Will he consider turning the failed banks into mutuals that focus on long-term returns and not on short-term profits?

[Mr Osborne]

We need to take some time before coming to decisions on how to dispose of the bank shares that we own in the Royal Bank of Scotland and Lloyds, and the banks we own, such as Northern Rock, not least because at the moment the British taxpayer would make a substantial loss on many of those share purchases. However, we are prepared to consider lots of options. Sir John Vickers’ commission is going to look at competition in the banking industry. It has become incredibly consolidated in the past couple of years and that is not necessarily the best thing for bank customers, as many of us will know from representing businesses that cannot get access to credit. It is sensible to look at what Sir John Vickers and his commission have to say about this.

Office for Budget Responsibility

Debate between George Osborne and Rachel Reeves

Monday 14th June 2010 Commons Chamber

[Mr Osborne]

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 (Leeds West) (Lab)]

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?

[Mr Osborne]

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.