UK Economy
Debate between Lord Redwood and George Osborne(9 years, 7 months ago)
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The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)
I very much welcome this opportunity to update Parliament and the country on some of the economic challenges that we now face. I welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her new position as shadow Chief Secretary. I will not welcome all the new members of the Labour Front Bench because it would be a bit like the presentation of the Bills that we just saw, but it is very good that the shadow Chancellor is still in place, and he has 80% of the support of the Conservative parliamentary party to remain there.
May I respond to this sober debate with a message of reassurance and realism? I say at the outset that because this is a challenging time and this is a good opportunity for the House to discuss these issues, we are not going to seek to divide the House on the motion today.
That message begins with the reality that I have never shied away from telling the country the truth, as I have seen it, about our economic challenges, and we do now face very significant economic challenges as a result of the referendum decision last week. I do not resile from any of the concerns that I pointed to before the referendum, but I want to provide reassurance that we are about as well placed as we could possibly be to meet the challenges that lie ahead. The shadow Chancellor was correct to raise problems such as low productivity growth, which bedevil many western economies, but the British economy has been the strongest advanced economy in the world in recent years. We have the highest employment rate in our history. The capital requirements for our banks are 10 times higher than they were before the financial crisis. Inflation is low and stable, and real wages and household disposable incomes have been growing. These things did not happen by accident—they happened because over the last six years we took difficult, sometimes painful decisions in order to rebuild our economy, to strengthen our banks and to put our public finances in better order. We said we would fix the roof—and thank goodness we made the progress that we did.
While I personally gave everything to campaigning for a different outcome, we saw a clear result in the referendum. I accept that result and the Government accept that result. Now we need to implement that decision and deliver for the British people on the instructions they have given us.
John Redwood
As the 10-year cost of borrowing has fallen from 1.4% to under 1% and the rate for 30-year money is now under 2%—record lows—does that not mean that there will a windfall element from lower interest charges? Will the Government consider funding the debt longer at this advantageous time for borrowing?
Mr Osborne
My right hon. Friend is right to point to the fall in UK gilt yields, but there has been something of a flight to safety. In the last six years, we have made UK Government debt a safe haven in stormy waters, and on this side collectively we can take enormous pride in the fact that we have done that. It is very different of course from the situation six years ago when yields were increasing in the face of economic difficulties, whereas here they have come in.
In terms of the financing of the debt, I have already on a number of occasions over the last six years changed the skew of the Debt Management Office’s debt plan and made sure we have more longer-dated debt than we would otherwise have had. One of the reasons why international investors and others have confidence in the UK gilt market is that we do not chop and change all the time every week, so while my right hon. Friend makes a very good point, I do not think we should immediately respond to the events of the last week by changing our financing remit. Indeed, the message we need to be sending very clearly is one of stability and reassurance. That brings me to the plan I believe we should now follow.
First, it involves ensuring financial stability, and that is precisely what we have been doing in the past few days. In the run-up to the referendum, the Treasury worked closely with the Bank of England and the Financial Conduct Authority to put in place robust contingency plans for the immediate impact of a leave vote. I met the Governor of the Bank of England to discuss it on a number of occasions, and the Financial Policy Committee and the Monetary Policy Committee both had special meetings to discuss those contingency plans. The Prudential Regulation Authority—essentially, our bank regulator—worked systematically with each major financial institution to make sure they were financially sound and prepared for whatever the outcome of the referendum was going to be. The Bank of England pre-announced additional liquidity auctions to support the banking sector. People will have seen this week from the result of those auctions that that liquidity has been provided. Over the last few days, we have been working closely alongside Finance Ministers and central bank governors across the G7 nations and the nations of the European Union to make sure that we are monitoring developments closely and are ready to respond. The president of the European Central Bank updated the European Council yesterday—the Prime Minister reported on that to the House earlier—but it has to be said that the update was not particularly rosy. Let us be clear: these contingency plans were designed to prevent disorder in markets; they were not designed to stop markets adjusting to the new economic reality.
I can reassure the House today that our major banks are resilient. Capital and liquidity remain strong, and this morning we have seen greater stability in the major banks’ share prices, and the currency markets are continuing to function effectively. But there have been significant adjustments, and we have to be realistic about the impact of the referendum on the financial markets.
Greece
Debate between Lord Redwood and George Osborne(10 years, 6 months ago)
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Mr Osborne
It may surprise the hon. Gentleman to find that I agree with him on a number of points. First, I agree that we should respect the result of the referendum and the democratic decision of the Greek people. I agree that we need to see the Greek economy grow, although I would say that that requires structural reforms, as my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), the former Chancellor, said. I hope we agree, too, that there are many members of the eurozone and that this cannot be just a unilateral decision by the Greek Government and the Greek people, because other peoples and other Governments are involved, including creditor nations. The final thing we agree on is that I think the hon. Gentleman would be an excellent leader of the Labour party.
John Redwood (Wokingham) (Con)
The Chancellor is quite right that there are two timetables here. In his discussions with the leading players in the eurozone, was there any sense of urgency? Do they understand that unless they find a way of getting money into the Greek banking system soon, huge extra damage will be caused to the Greek economy when people will be unable to settle transactions or trade with the Greeks, and that there could be further desperate consequences to the Greek banking system? Does he agree that if the banking system goes down and cannot reopen sensibly, everybody will be far worse off and it would be a major disaster for the eurozone as well as for Greece?
Mr Osborne
My right hon. Friend makes the correct observation about the speed of events. To be fair, in speaking to my counterparts, I have found that they do accept the sense of urgency, but trying to get the political systems and political meetings to deliver at the right pace is, of course, difficult. That is the big challenge in the coming days. Whatever the outcome for Greece’s future membership of the euro, we want it to take place in an orderly rather than a disorderly way. Bridging between where we are today and the eventual outcome is something that the authorities in the eurozone need to work on.
Greece
Debate between Lord Redwood and George Osborne(10 years, 7 months ago)
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Mr Osborne
Let me deal with the specific points that the hon. Gentleman has raised. Our advice to the many British people who are planning to go on holiday to Greece is very clear. They should continue to check the travel advice on the Government website. As I have just explained, that advice has been changed, and we are advising people to take more euros with them than they might have been expecting to take.
The hon. Gentleman makes a point about our conversations with the Greek authorities. Clearly they have tried to, in some sense, protect tourists from their capital controls, because if people have access to a foreign bank account, they can withdraw up to €600 from the ATMs. But of course one has to think through a situation where the ATMs potentially start to run out of money, particularly in certain locations. That is why we are advising people to take more cash with them but also to be aware of the safety issues involved in that.
On the question about British citizens who have deposits in Greek banks, I hope I made it clear in my statement that deposits in branches of Greek banks, and indeed, in that sense, also the host bank, are not covered by the UK’s compensation scheme, but the deposits in the subsidiary are in the UK. If people are not entirely sure what their situation is, they should check with their bank, but that has been spelled out for them. On the support for the British embassy and our consular teams in Greece, the Foreign Secretary is here, we have discussed this and the Foreign Office has put in place contingency plans to step up the support it can provide on the ground should the situation deteriorate.
On the exposure of our banking system, it is less than 1% of the common tier 1 capital of the UK banks. As I said in my statement, it is fair to say that as a country and as a banking system we have dramatically reduced our exposure to Greece, as has pretty much every other bank in Europe. In terms of how this is co-ordinated across government, the Bank of England leads on financial stability issues, the Foreign Office covers the consular issues, and the Treasury is covering the financial stability issues and working with the Department for Work and Pensions on payments, but we are meeting regularly. We had the meeting today and we also had a meeting last week, which the Governor also attended. On businesses affected, advice is available on the Department for Business, Innovation and Skills website, and, as I say, HMRC’s time to pay scheme can help with cash flow. Only 0.6% of the UK’s exports of goods and services go to Greece, so it is a small amount, but of course there could be a considerable impact on individual firms.
The IMF was created after the second world war to provide support for economies that have been struggling. We took steps in the last Parliament to increase the capital available to the IMF—I might point out that the Opposition divided the House on that issue, but it was a sensible step to take. The IMF has precautionary balances, and let us be clear that no one has ever lost money lending to the IMF and providing support to the IMF. Of course the IMF is very important in this situation, not least because of the rigour that it brings, which is one of the reasons why quite a few members of the eurozone are absolutely insistent that the IMF is around the table.
The final point I would make is this: of course we would like a peaceful—if that is the right word—or less traumatic resolution of this crisis, but things have taken a turn for the worse because of the decision to hold this referendum and because the Greek Prime Minister said he was going to recommend a no vote. I would therefore suggest that at the moment, in the next few days, the ball is largely in the Greek Government’s court. Of course if things change, there is a very big role for the eurozone to play in helping to achieve a negotiated settlement.
The observation I would make is that five years ago we were much less well prepared to deal with shocks from abroad: we had a very high budget deficit, one of the highest in the world; and our banks were not as well capitalised as they should have been. We are in a stronger position as a result of the difficult decisions we have taken over the past five years and if the hon. Gentleman is willing to support the further decisions that we are going to take in the Budget next week, I look forward to his saying so next Wednesday.
John Redwood (Wokingham) (Con)
The European Central Bank has lent €89 billion so far to the Greek banking system, and that money is now at risk. Will the Chancellor confirm that, thanks to our prudent approach, UK taxpayers would not make any contribution to the recapitalisation of the ECB if that money has now been lost?
Mr Osborne
My right hon. Friend is right to point out that in effect what has happened over the past few years is that the private exposures to Greece have been converted into eurozone public exposures and, of course, into IMF exposure. That is part of what has happened. One key decision that we took in the previous Parliament was to get the UK out of these eurozone bail-outs. The previous Government had signed us up to those bail-outs, but the Prime Minister got us out of them and, as a result, dramatically reduced the UK’s direct exposure. But, as I have said, we are part of the financial system of Europe and we will be affected if there is a Greek exit.