ECOFIN (20 June 2011)

George Osborne Excerpts

Tuesday 14th June 2011 Written Statements

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

The Economic and Financial Affairs Council will be held in Luxembourg on 20 June 2011. The following items are on the agenda:

Legislative proposals on economic governance

Given the Hungarian presidency’s aim of reaching agreement on the economic governance legislative package before the end of June, they have scheduled an informal ECOFIN dinner for 14 June in Brussels, which the Financial Secretary will attend. Trialogues with the European Parliament (EP) are ongoing on an almost daily basis, and the presidency is keen to get Finance Ministers’ support for an updated general approach on the six legislative proposals. Negotiations with the Parliament will then continue, with the aim of agreeing the final compromise package at the 20 June ECOFIN.

Greater economic stability within the euro area is firmly in the UK’s interests, and the Government broadly support this legislation; it should be noted that the UK’s partial opt-out from the fiscal frameworks directive remains protected. The EP is attempting to secure: a greater role in economic surveillance including through public debates and hearings with member states; a stronger role in setting the scoreboard of indicators for macro-economic imbalances; and to introduce reverse qualified majority voting more widely. It will be important to ensure that the presidency maintains a firm line in negotiations with the Parliament given that, under the treaty, the EP has a limited formal role in fiscal and macro-economic surveillance.

Proposal for a Decision of the European Parliament and the Council granting an EU guarantee to the European Investment Bank (EIB) against losses under loans and guarantees for projects outside the EU

The presidency will report back on trialogues with the European Parliament, and seek Council agreement to adopt a new EIB external lending mandate as part of the mandate’s mid-term review. The Government will work to ensure that the EIB’s external lending is allocated appropriately.

Directive on Deposit Guarantee Schemes

This directive is a revision of the 1994 EU rules on deposit guarantee schemes, in order to improve depositors’ confidence and promote financial stability. The new rules are designed to ensure sound, effective deposit guarantee schemes across the EU and EEA. The Government broadly support the directive, and will seek to ensure that it meets its aims of improving depositor confidence and providing a level playing field for depositors without imposing unreasonable costs on the industry.

Regulation on over-the-counter derivatives, central counterparties and trade repositories (EMIR)

The Commission issued legislative proposals in September to implement G20 commitments on the regulation of derivatives markets, and the presidency will aim to agree a general approach at this ECOFIN. The Government welcome these measures to increase transparency and reduce systemic risk in derivatives markets, and believe that this must be done in an internationally consistent and non-discriminatory way, in line with the G20 commitments and with the agreement on the establishment of the European supervisory authorities last year.

Proposal for a Regulation of the European Parliament and the Council establishing technical requirements for credit transfers and direct debits in euros

The UK supports the proposed regulation, which will facilitate the creation of a single market for electronic payments in euros.

European Banking Authority stress testing

This item will be an orientation debate on how to communicate the results of the European Banking Authority (EBA) stress tests, which are due to be published in the first half of July. Finance Ministers are also likely to discuss how to link the results to the backstops measures put in place by member states to address potential vulnerabilities in their banking systems. The Government believe that it is important to increase confidence in the European banking system through the implementation of coherent and transparent measures to address any vulnerabilities. It is also important to demonstrate the EU’s commitment to medium-term reforms, as agreed internationally, by implementing Basel III in full.

European Semester

ECOFIN will agree country-specific opinions and recommendations (CSRs) on member states’ fiscal and structural reform policy, under the EU’s stability and growth pact (SGP) and Europe 2020 strategy. Member states are expected to take these CSRs into account when preparing their budgets and structural reform plans for the year ahead. The European Commission’s proposed recommendations to the UK are supportive of the Government’s fiscal plans, and the Commission urges the Government to proceed as planned with implementing fiscal consolidation. Other recommendations focus on the housing market, tackling youth unemployment, addressing the proportion of people in jobless households, and improving access to finance for SMEs. The Government will negotiate the precise drafting of these recommendations in the lead-up to ECOFIN. The recommendations will then be formally adopted by the European Council on 24 June as Council recommendations.

Quality management for European statistics

Finance Ministers will agree conclusions on ensuring the quality of public finance statistics in the EU. The Government support the principles of this proposal, and will work to ensure that the approach to implementation allows proper usage of the relevant statutory bodies’ existing responsibilities.

Code of Conduct (business taxation)

ECOFIN will agree conclusions on the work of the code of conduct group over the last six months. The code of conduct is an EU-level political agreement between member states to work co-operatively to identify and eliminate harmful business tax measures in the EU and prevent the introduction of new ones. The code group’s report is a standing ECOFIN agenda item at the end of each presidency, and the conclusions follow standard wording.

IMF (Increase in Subscription)

George Osborne Excerpts

Tuesday 14th June 2011 Written Statements

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

Yesterday, the Government laid the International Monetary Fund (Increase in Subscription) Order 2011 before the House of Commons in draft. Copies of resolution 66-2 of the board of governors of the fund, which relate to this order, have been deposited in the Libraries of both Houses.

ECOFIN (17 May 2011)

George Osborne Excerpts

Wednesday 18th May 2011 Written Statements

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

The Economic and Financial Affairs Council was held in Brussels on 17 May 2011. The following items were discussed:

Economic governance

The Council took note of a report from the presidency on progress in negotiations with the European Parliament on a package of legislative proposals on economic governance. The presidency took on board the views of member states and agreed to take these forward during further negotiations with the European Parliament, which are ongoing, with a view to finalising legislation by the end of June.

Short selling regulation

The Council agreed a general approach on the draft regulation on short selling and credit default swaps. The intention of the regulation is to harmonise short selling requirements across the European Union and harmonise the powers that regulators may use in exceptional situations where there is a serious threat to financial stability or market confidence. I ensured that the Commission and the Council, thanks to a written statement, would work during the trialogues to find a solution taking into account the concerns expressed by member states in the ECOFIN Council regarding the powers of ESMA in article 24.

Savings taxation directive

The Council held an orientation debate on how to proceed with a proposal aimed at strengthening the provisions of the EU’s directive on the taxation of savings interest. The Council agreed to continue working on reaching agreement.

Financial sector taxation

The Commission updated the Council with an interim report of financial sector tax and regulation. The Council also received a report from the Economic and Financial Committee, providing a factual overview of financial levies and taxes. Ministers took note of the reports. The Commission was asked to produce an impact assessment on various options of financial sector taxation. The high-level working party on tax will continue work on this subject and report back as appropriate.

Nomination of the President of the European Central Bank

The euro area member states, in Council, adopted a recommendation on the nomination of Mario Draghi (Italy) as President of the European Central Bank, to succeed Jean-Claude Trichet, whose term of office expires on 31 October 2011. The Council’s recommendation will be submitted to the European Council, which will consult the European Parliament and the ECB, with a view to adopting a final decision at its meeting on 23-24 June 2011.

Financial back-stops

The Council approved a draft statement on guiding principles on financial backstops, for financial institutions which are shown to be vulnerable by this year’s EU-wide stress tests. The presidency confirmed that bank stress test results will be published later this year.

Review of economic adjustment programme for Ireland

Finance Ministers adopted a decision to modify the conditions underpinning financial assistance to Ireland under the European Financial Stability Mechanism (EFSM), in order to prepare the disbursement of a second loan instalment. This follows a review by the IMF and the Commission, liaising with the European Central Bank, of progress made by Ireland in implementing its economic adjustment programme, which was approved last November.

Financial support to Portugal

The Council adopted a decision allowing for €26 billion of financial assistance to Portugal under the European Financial Stability Mechanism (EFSM), part of an overall €78 billion package of assistance. This will also comprise €26 billion of loans under the euro area-only European Financial Stability Facility and €26 billion from the IMF under its Extended Fund Facility. The EFSM loan will have a maximum average maturity of 7.5 years and a margin of 215 basis points on top of the EU’s cost of funding. The aid will be provided on the basis of a three-year policy programme for the period up to mid-2014, which was negotiated with the Portuguese authorities by the Commission and the IMF, in liaison with the European Central Bank.

The economic and financial adjustment programme includes;

structural reforms to boost potential growth, create jobs, and improve competitiveness;

a fiscal consolidation strategy, supported by structural fiscal measures and better fiscal control over public-private-partnerships and state-owned enterprises, aimed at putting the gross public debt-to-GDP ratio on a firm downward path in the medium-term and reducing the deficit below 3% of GDP by 2013;

a financial sector strategy based on recapitalisation and deleveraging, with efforts to safeguard the financial sector against disorderly deleveraging through market-based mechanisms supported by backstop facilities.

Financing climate change

The Council adopted conclusions on climate finance. These conclusions outline the key issues and next steps in international climate finance. The Government welcome these conclusions.

Information on the Informal ECOFIN meeting

Ministers received a summary from the presidency on the issues that were discussed at the Informal ECOFIN which took place in Budapest on 7-8 April 2011.

Draft general budget for 2012

The Commission presented its proposed general budget for 2012 to the Council, which included a 4.9% increase in payments. I made it clear that this proposal was completely unacceptable. In line with the agreement made between the UK, France, Germany, the Netherlands and Finland in December 2010, the Government’s opinion is that growth in the EU’s annual budget must be curbed, in order to reflect difficult economic conditions and tough measures taken by national Governments to cut spending.

Dialogue with EU candidate countries

Ministers held an informal meeting with their counterparts from the EU candidate countries: Turkey, Croatia, the Former Yugoslav Republic of Macedonia, Montenegro and Iceland. The meeting focused on the candidate countries’ economic policies.

AOB: Purple File

This item was added to the agenda at the request of Poland. They raised their concerns with the Purple File, which sets out procedures to follow when a member state seeks a flexible credit line from the IMF. The UK believes that the procedure needs to be identical for both euro and non-euro area countries, whereby the Economic and Financial Committee is informed of, and given the opportunity to discuss, any request for financial assistance by any EU member state.

European Stability Mechanism

In an inter-governmental meeting preceding ECOFIN, it was agreed that member states could forward a draft of the inter-governmental treaty (between euro area member states only) creating the new, permanent European stability mechanism to national parliaments. I will write to the chairs of the European Scrutiny Committees with the draft text.

Oral Answers to Questions

George Osborne Excerpts

Tuesday 10th May 2011 Commons Chamber

[Helen Goodman (Bishop Auckland) (Lab)]

1. What recent assessment he has made of the effectiveness of the monetary policy framework.

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

I begin by expressing my own personal sadness and shock at the death of David Cairns, whom I knew pretty well. I went with him on a trip to the United States some years ago and spent some time with him, and I know that he was principled, gentle—in the best sense of the word—and genuinely liked and respected in all parts of the House. His sudden and premature death is a tragedy, and my sympathies—and, I suspect, those of everyone here—go to his partner Dermot and his family.

The Government have set up a new macro-economic framework to restore economic stability. The building blocks of that framework are an independent Monetary Policy Committee that will continue to target inflation, a new Financial Policy Committee to operate macro-prudential tools, so that we can assess overall levels of debt in the economy—something not done in recent years—and, crucially, a credible, coherent and independently monitored fiscal policy that allows interest rates to stay lower for longer while remaining consistent with the inflation target. It is now widely accepted that this framework is far more effective than the one that went before it.

[Helen Goodman]

May I associate myself with your tribute, Mr Speaker? David Cairns was a highly valued colleague, and I am sure that all our thoughts and prayers are with his partner Dermot and his family.

I am grateful to the Chancellor of the Exchequer for his answer, and I was wondering whether, in his more reflective moments, he would agree that Portugal, Greece and Ireland face a major problem, in that they cannot run an independent monetary policy attuned to their particular needs. That being the case, will he stop making rather childish comparisons between the UK and the eurozone countries?

[Mr Osborne]

The hon. Lady is right that those countries do not have a flexible exchange rate. That is because they are in the euro, which I campaigned to keep Britain out of. I do not know how she has campaigned in recent years, but the last time I checked I think it was still official Labour party policy to join the euro in principle. Perhaps the shadow Chancellor will clear that up when he gets to his feet. The comparison I make is a good one: a year ago almost to the day, people were looking at the British budget deficit, which was larger than those of Portugal and Ireland, and asking whether Britain could pay its way in the world. Our credit rating had been put on negative watch. Now, however, thanks to the policies of this coalition Government, Britain has economic stability again.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

I also wish to pay tribute to the memory of David Cairns. May I ask the Chancellor how the co-ordination is organised to achieve a synthesis between our tight fiscal policy and our lax monetary policy?

[Mr Osborne]

Obviously, monetary policy is independent—the MPC sets it in the way we all know—so there is no co-ordination in that sense. I do not have a direct influence on monetary policy, but it is clear that by setting a credible fiscal policy, we give the MPC maximum room for manoeuvre and the freedom to keep interest rates lower for longer. The Governor of the Bank of England made that clear when he gave his Mansion House speech last year, and it is an observation also made by many independent observers of the British economy. Interest rates would be higher if we had a less credible fiscal policy.

[Ms Angela Eagle (Wallasey) (Lab)]

I would like to thank you, Mr Speaker, and the Chancellor for your tributes to David Cairns, our colleague, and to add our tributes from the Opposition side of the House. David was one of those very rare people who caused a change in the law in order for him to be able to take his seat in this place, and when he arrived his presence was not a disappointment to anyone. He was a great colleague and friend, and our hearts go out to his family and friends. We would like to add our deepest condolences at the shocking news of his untimely and very early death today.

Before the last election, both parties now in government pledged no rise in VAT, but with inflation running at double the Bank of England target, people are facing the biggest and longest squeeze in their living standards for 80 years. How does the Chancellor think that increasing VAT by 2.5% has helped them to cope with this issue?

[Mr Speaker]

Order. Whatever may be said about the question, I am sure that the Chancellor will focus on the monetary policy framework. That is what he can be relied upon to do.

[Mr Osborne]

Actually, monetary policy is the thing that I am not directly in charge of, but the point I would make is that the VAT rise is part of a credible fiscal policy. The person who was Chancellor of the Exchequer before me has made it pretty clear in interviews since the election that he, too, was considering a VAT rise, and he would probably have gone ahead with one if Labour had been re-elected.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

indicated dissent.

[Mr Osborne]

The shadow Chancellor shakes his head. I know that in government he tried to do everything to stop a credible fiscal policy being developed, and he is now doing everything in opposition to stop Labour developing a credible economic policy. Long may he continue to do so.

[Mr Andrew Tyrie (Chichester) (Con)]

The Chancellor will shortly publish draft legislation on financial regulation making the Bank of England the most powerful central bank of its type in the world. The word “Governor” simply does not do justice to the empire over which Mervyn King will shortly preside. What specific proposals does the Chancellor have to ensure full democratic accountability of the reformed Bank to both Parliament and the country?

[Mr Osborne]

I thank my hon. Friend for advance notice of his important question. Both the Governor of the Bank of England and the Government take the accountability of the Bank very seriously. Clearly the Bank will receive considerable new powers for its prudential regulation of our financial system and in its macro-prudential tools. We are looking at specific ideas for enhancing the Bank’s accountability, including to this House, but it would be appropriate first for me to appear before my hon. Friend’s Committee—I know that he has contacted my office seeking a date—and to await the Treasury Committee’s findings, so that we can listen to what it has to say before coming up with our confirmed proposals.

[Tessa Munt (Wells) (LD)]

2. What recent assessment he has made of trends in levels of bank lending to small businesses.

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[Esther McVey (Wirral West) (Con)]

3. What fiscal measures he is taking to reduce the costs faced by businesses.

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

As well as dealing with the deficit, this Government are helping business. To support a private sector recovery, we have cut corporation tax by 2% this year, with 3% to come. We have cut small companies’ tax and extended the small business rate holiday for another year. We have stopped Labour’s jobs tax, expanded enterprise and research tax breaks, announced new enterprise zones and, crucially for millions of businesses and families, we have abolished the fuel duty escalator and cut the duty.

[Esther McVey]

As Merseyside seeks to expand its private sector, it is looking towards its knowledge economy so that it can build on its substantial science base. Predictions show that, by 2022, it could have growth of 15%, which would mean 58,000 jobs. What are the Government doing to incentivise such growth to ensure that those predictions for Wirral and Merseyside become a reality?

[Mr Osborne]

First, we have increased science funding in the north-west. Although it is not in my hon. Friend’s constituency, there has been additional money for Daresbury, which was announced in the Budget. Also, Mersey Waters in her constituency is going to be an enterprise zone. We have also announced the redevelopment of the Royal Liverpool hospital at a cost of £450 million. So, whether it is medical research, science at Daresbury, the Atlantic Gateway project or the enterprise zones, we are doing all sorts of things to help the Mersey region.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

I endorse the sentiments expressed by my hon. Friend the Member for Wallasey (Ms Eagle) and others about the tragic death of our colleague and friend, David Cairns.

I also congratulate the Chancellor on his successful masterminding of the “No to AV” campaign. We all saw how much he enjoyed it over the past week or so, but now that that political campaign is out of the way, perhaps he could drag himself back to his day job for a moment. The flagship measure of his strategy for growth in last year’s Budget was a £1 billion national insurance holiday for new businesses outside London and the south-east. He said that that would benefit 400,000 companies and create 800,000 jobs. Let me ask him a very specific question. Will the Chancellor tell the House how many companies have so far benefited from that scheme, and how many jobs have been created?

[Mr Osborne]

I thank the right hon. Gentleman for congratulating the “No to AV” campaign, which many of his colleagues supported, even if he did not. I cannot help but notice that he had a big role to play in Labour’s election campaign, during which he said that

“the Scottish elections are a big test”

for Labour. Well, he was certainly right about that.

Let me say something about that national insurance tax break that was announced in the previous Budget. The take-up has been in the low thousands, and that is something that I acknowledged to the Treasury Select Committee. We are seeking to improve the design of the scheme, to ensure that new businesses are more aware of its benefits. As a result of work being done by Her Majesty’s Revenue and Customs, we expect take-up to increase.

[Ed Balls]

Despite all the bluster, there was not a specific answer to the question in there. We were told by the Business Secretary in February that the Chancellor would announce the details of how he would develop the scheme in the Budget, yet those details still have not arrived. Actually, I have the figures from the Chancellor’s own Department. How many companies have benefited from the scheme? Not 400,000 but just 3,000. How many jobs have been created? Not 800,000 but just 6,000. If that is the flagship measure of his growth strategy, it is no wonder that the economy is flat-lining, that consumer confidence is down and that unemployment is forecast to rise—[Interruption.] Well, if that is not the reason, perhaps the Chancellor will tell us why the economy has been flat-lining in the past six months. Is not the reality that the country is discovering what the Liberal Democrats discovered on Thursday of last week: that this coalition is hurting, but it is not working?

[Mr Osborne]

The shadow Chancellor is not just out of his depth; he is drowning. The truth is that he has had absolutely no impact in the several months that he has been doing the job. He had one policy, a VAT cut on fuel that the European Union ruled illegal. He had one idea, which was to follow America, but now the Obama Administration have announced a deficit reduction plan as fast and as deep as the UK’s. He had one prediction, which was that there would be a double-dip recession, and that has not happened. We know that he is a man with a past, but we are beginning to discover that he has absolutely no ideas for the future. If we want any proof of that, this is what the CBI said this week when asked what the outcome would be if Britain followed Labour plans:

“The economy would be weaker because of the impact of a loss of confidence”.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

4. What assessment he has made of the effects of the increase in the standard rate of VAT on levels of economic growth in the first quarter of 2011.

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[Tony Baldry (Banbury) (Con)]

5. What fiscal measures he is taking to encourage charitable giving.

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

The Government think that charitable giving needs a great deal more support than it has been getting, so we announced a major package of new tax breaks in the Budget, ranging from the biggest to the smallest donations. This includes the commitment that anyone giving more than 10% of their estate to charity will have their inheritance tax bill cut by 10%. For the first time ever, the first £5,000 of a donation or donations to a charity will automatically attract gift aid. That is automatic tax relief on the collection plate and the collecting tin on the high street. Overall, 100,000 charities could benefit to the tune of £600 million a year. These are the most generous tax changes for a generation.

[Tony Baldry]

Over the year, some £58 million in loose change is put in collection plates from just Church of England collections, so the small donation gift aid scheme will be very welcome, as it will enable tax to be recovered on that amount. Welcome, too, will be the reduction in inheritance tax for those who give more than 10% of their estate to charity. After all, we can take nothing with us, and it is probably better to leave as much as possible to charity when we go.

[Mr Osborne]

I thank my hon. Friend for his support. One challenge is to make sure that everyone hears about these schemes over the next couple of years. Because the Budget focused on big issues like fuel duty and the corporation tax cut, the same amount of attention was not given on Budget day to the charitable giving measures. Over the period before they come into effect, I want to make sure that all the charities are aware of the benefits. Every charity will be able to benefit, but small charities will be disproportionately better off.

[Kerry McCarthy (Bristol East) (Lab)]

Many local charities would disagree with the Chancellor’s statement. Will he explain why he chose in the Budget to focus on tax breaks for the wealthiest owners when many small local charities who will not benefit from such donations are being hit by the triple whammy of a rise in VAT, the end to the gift aid transitional rate and cuts to local government grant funding? What help is he giving to those charities that he expects to form the backbone of his big society?

[Mr Osborne]

I am not sure who the hon. Lady has been listening to, but this is what the British Red Cross said: “Allowing charities to—”[Interruption.] I am sorry; it seems that we should disregard the views of the British Red Cross. Let me, however, repeat what it said for the benefit of my right hon. and hon. Friends.

“Allowing charities to claim back on up to £5,000 of small donations per year will have a big impact for small charities”.

The Charities Aid Foundation said:

“The Chancellor has today delivered for charities and those who want to support them.”

Instead of carping from the sidelines, why does the hon. Lady not get behind this good scheme and ensure that all charities in all our constituencies make use of it?

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[Nicholas Soames (Mid Sussex) (Con)]

11. What steps his Department is taking to promote economic growth.

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

As my hon. Friend knows, we inherited an economic mess, we have restored economic stability and we are promoting economic growth by cutting business taxes, encouraging investment, expanding exports, improving and investing in skills, and creating jobs. The whole House will be pleased to know that 400,000 private sector jobs have been created since the Government came into office.

[Nicholas Soames]

I warmly welcome the excellent record of this Government, led by my right hon. Friend the Prime Minister, and the admirable work done by the Chancellor. Does he agree that, in addition to all this work to encourage growth, the deregulation of the economy continues to be extremely important and that it is not proceeding at as fast a pace as it should? Will he do everything he can to encourage his colleagues in the Government to get on with the deregulatory programme?

[Mr Osborne]

I certainly am doing that. We announced in the Budget the deregulation of £350 million-worth of business regulation, and we also imposed a moratorium for the coming years on regulation on small businesses. On the first anniversary of this Government, it is worth reflecting that 400,000 extra jobs have been created in the private sector, 89,000 fewer people are on the unemployment count, manufacturing output is up by 5%, business investment is up by 11%, exports are up by 12%, our credit rating has come off negative watch, our market interest rates are down and, as I say, economy stability has been restored.

[Tristram Hunt (Stoke-on-Trent Central) (Lab)]

Would the Chancellor like to associate himself with the views of the Secretary of State for Business, Innovation and Skills on the cumulative effect of carbon reduction measures on the competitiveness of energy-intensive industries? There is real concern in the ceramics sector in my constituency that the Government are in danger of exporting jobs and importing carbon, which is in nobody’s interest?

[Mr Osborne]

The hon. Gentleman raises a very specific issue—the cumulative impact of the environmental policies of both the previous Government and this one on some very energy-intensive industries such as the one that he represents in Stoke—which is worth consideration. We are examining it, and it is a challenge for the whole House to ensure that we get the right balance between absolutely meeting our carbon reduction requirements, to which we have all signed up as Members of this Parliament, and ensuring that we can do so in a way that enables Britain to continue to have a competitive energy-intensive industry.

[David Mowat (Warrington South) (Con)]

12. What his policy is on the operation of the Barnett formula in relation to relative need.

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[Chris Kelly (Dudley South) (Con)]

T1. If he will make a statement on his departmental responsibilities.

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

The core purpose of the Treasury is to ensure the stability of the economy, to promote growth and employment, to reform banking and to clear up the mess in the public finances that we inherited so that Britain starts to live within her means.

[Chris Kelly]

The Chancellor will know that fraud and error have plagued the tax system since it was introduced. What measures is he taking to bear down on this and what financial impacts does he expect those measures to have?

[Mr Osborne]

I can today report to the House that in the past year Her Majesty’s Revenue and Customs has saved an additional £1 billion by tackling fraud and error in the tax credit system. For many years, the flaws in the shambolic administration of tax credits went completely ignored by the Labour party, causing misery for hundreds of thousands of families and costing the taxpayer billions of pounds, but we are now sorting out this mess.

[Mr William Bain (Glasgow North East) (Lab)]

T3. Has the Chancellor had an opportunity to note the findings of last week’s report from the National Institute of Economic and Social Research, which show the contraction in public and private demand since emerging from the recession to be higher in this country than in any comparable major economy? Does that not show that the Government are cutting too far and too fast?

[Mr Osborne]

First, the report recommends higher taxes and higher interest rates—perhaps that has become part of the Labour party’s official policy. I think it is worth looking at what the CBI has said this week. I have already quoted what it said when I was asked what the outcome would have been had Britain followed Labour’s plans—it said there would have been weaker economic growth—but its director general has also said:

“We are rock solid behind the chancellor’s plans to eliminate the structural deficit within a parliament”,

which are an

“essential part of putting the economy back on a stable footing”.

That is the voice of British business’s view of the deficit. [Interruption.] The shadow Chancellor says that is not true. A couple of months ago he was quoting the CBI across the Dispatch Box at me, but now that the CBI says that Labour’s economic policies would lead to weaker economic growth, he is in denial about that too.

[John Pugh (Southport) (LD)]

T2. What financial stress test will the Treasury impose before allowing the Department of Health to authorise general practitioner or clinical consortia?

[Vernon Coaker (Gedling) (Lab)]

T7. Does the Chancellor recall his statement to the House in October, when he said:“I completely understand the public’s anger that the banks…should now be contemplating paying high bonuses”?—[Official Report, 20 October 2010; Vol. 516, c. 955.]It is all very well being angry about that, but why do the banks continue to pay high bonuses to their high-ranking directors and why does he not do something about it? Why does he not repeat Labour’s bank bonus tax and reinvest the money in jobs, housing and many other things that the people of this country want?

[Mr Osborne]

Bank bonuses were higher when the hon. Gentleman was a Minister. There is complete amnesia among the Opposition about their having presided over the collapse of the British banking system and over bonuses that were billions of pounds higher in total than those being paid today, and they have no ideas about how to reform the banking system. The Chancellor who introduced the bank bonus tax to which the hon. Gentleman refers said that it would not work again. We have introduced a permanent bank levy which, I think, the Labour party continues to oppose.

[Amber Rudd (Hastings and Rye) (Con)]

T4. The economy of Hastings received a tremendous boost today when the Heritage Lottery Fund announced that it would support our bid for £8.7 million for the pier renewal but, sadly, seaside towns in general and we in Hastings suffer from bad transport links, high public sector employment and low wages. Will the Chancellor consider what can be done to support seaside towns under this Government?

[Mr Osborne]

I join my hon. Friend in celebrating the good news about the successful bid for the renovation of the pier. She is right to point out that there are specific issues associated with seaside towns across the country which are well known to the Members who represent them and well known also to the Government. We intend to come forward with proposals later this year to help those seaside towns.

[Ian Mearns (Gateshead) (Lab)]

T8. Household debt has been revised upwards by £300 billion, and my constituency, Gateshead, has one of the highest rates of personal insolvency in the country. What is the point of cutting the national debt, only to transfer the burden on to the personal finances of ordinary families? It is blindingly obvious that we are not all in this together—some of us are in this up to our necks.

[Mr Osborne]

I am afraid the hon. Gentleman misses two important facts. First, the most recent figures—within the past week—for personal insolvencies showed a welcome fall. Secondly, household debt reached a record level under the previous Government. As I said in response to the first question today, we are introducing a Financial Policy Committee to assess overall levels of private debt, including business debt, in the economy so that we do not allow dangerous unsustainable levels to grow. That will now be a judgment for the Financial Policy Committee and it will have the tools to do something about it.

[Stephen Mosley (City of Chester) (Con)]

T5. Can my right hon. Friend update the House on what discussions he has had about the likelihood of a further bail-out of the Greek economy and whether he has made any assessment of the UK’s likely contribution?

[Mr Osborne]

The answer is that we have not had discussions about a second Greek bail-out and we have not been asked to make a contribution. The question for Greece is whether it lives up to the commitments that it has entered into. There is currently an International Monetary Fund, European Commission and European Central Bank team in Athens assessing Greece’s progress against the plan that it committed to, and we should await the results of that assessment.

[Mr Speaker]

Jonathan Reynolds is not here, so I call Stephen Timms.

[Stephen Timms (East Ham) (Lab)]

A year ago the Office for Budget Responsibility was projecting growth in the UK economy of 2.6% this year. Now the forecast is down to 1.7%. What has gone wrong?

[Mr Osborne]

As I am sure the right hon. Gentleman knows, there are very significant global headwinds of the high oil—[Interruption.] I know that Labour Members live in a complete vacuum but, according to the most recent growth figures for this first quarter, the British economy posted a higher quarterly growth rate than the United States of America. Of course we have the high oil price and the ongoing problem in the eurozone, but what is required above all is a credible deficit reduction plan that keeps Britain out of the financial danger zone.

[Oliver Colvile (Plymouth, Sutton and Devonport) (Con)]

T6. Given that Plymouth is a low-skills, low- wage economy with 38% of the work force dependent on the public sector, can my right hon. Friend give me the timetable for the creation of enterprise zones? What role could green deal manufacturing play within that?

[Mr Osborne]

I know that my hon. Friend is a trenchant supporter of his constituency and a promoter of green industry there. He has raised the issue with me on a number of occasions. I know that Plymouth has put forward a bid for the second round of enterprise zones. An announcement will be made later this summer, in July, and I am afraid he will just have to wait until then, but as I say, he has certainly brought to my attention the potential for the green economy in the city that he represents.

[Stewart Hosie (Dundee East) (SNP)]

May I offer my condolences to the friends, family and colleagues of David Cairns? He was a man who always argued his corner with intelligence and humour, and carried the rare gift of being liked and respected across the Scottish political divide. We will all miss him.

I am sure the House is pleased that both Santander and RBS have access to European Investment Bank funds to issue discounted loans into the economy—£150 million in the case of Santander, and a third tranche of £300 million in the case of RBS. Can the Chancellor confirm that this is new, additional money, or will it be rolled into the gross lending figures already agreed?

[Mr Osborne]

Let me write to the hon. Gentleman on the specific issue of the Santander loan and the application to the European funds. I take this opportunity to congratulate the Scottish National party on its victory in the Scottish parliamentary elections and say that we respect their outcome. As he knows, my right hon. Friend the Prime Minister contacted the Scottish First Minister to congratulate him personally. I hope that we can work together in the next few months and years to deliver what we both want to see, which is jobs and prosperity in Scotland.

[Joseph Johnson (Orpington) (Con)]

T9. US Treasury Secretary, Timothy Geithner, recently praised the Government’s fiscal reduction plans, saying that the Chancellor had locked the coalition Government into a set of reforms that were “very good”. What lessons has he drawn from this powerful endorsement?

[Mr Osborne]

Of course it is welcome to have the support of the US Treasury Secretary. It is interesting that we have been urged for some months by Labour to follow the US example. The Obama Administration, in the speech the President gave at George Washington university, set out a deficit reduction plan—it is not yet legislated for in Congress—that goes faster and deeper than the one we are promoting here in the UK. I suspect that we will not now hear the argument that we have heard for the past few months from the Labour party.

[Alison McGovern (Wirral South) (Lab)]

May I associate myself with the remarks about our much-missed colleague David Cairns that you, Mr Speaker, and others have made?

Recent commentators have suggested that it is possible that the Government will not meet their target to balance the cyclically adjusted current budget by 2015-16, by the end of this Parliament. If it becomes clear that Tory cuts are not working to reduce the deficit, at what stage will the Chancellor change course?

[Mr Osborne]

I have just been told by my hon. Friend the Member for Chelsea and Fulham (Greg Hands) something about the hon. Lady that I did not know: she is the Parliamentary Private Secretary to the previous leader of the Labour party. It is presumably not a job with onerous responsibilities, but it sounds as though he may have written that question for her. The Office for Budget Responsibility is the independent body that assesses our ability to hit the fiscal mandate. The reason we set it up was because under the stewardship of the person to whom she is PPS all credibility for Treasury figures was lost.

[Mrs Helen Grant (Maidstone and The Weald) (Con)]

Only 14% of small businesses are owned by women. What action will the Chancellor take to improve this figure?

[Mr Osborne]

It is incredibly important to try to increase the number of women who set up their own businesses. The Government have undertaken a number of specific initiatives, driven from No. 10 Downing street, and I will ensure that my hon. Friend is closely involved in them.

[Mr Chuka Umunna (Streatham) (Lab)]

Yesterday, in a welcome move, the British banking industry abandoned its legal fight with the Financial Services Authority over the mis-selling of payment protection insurance. Does the Chancellor agree that this scandal, as a result of which millions of people in this country were fleeced by the banking sector on a large scale, was an absolute disgrace and that the banks involved should settle the claims that arise, immediately and without further delay?

--- Later in debate ---

[Bill Esterson (Sefton Central) (Lab)]

The Chancellor did not answer the question from my hon. Friend the Member for Gedling (Vernon Coaker), so I would like to give the right hon. Gentleman another chance. Will he repeat the bank bonus tax that was so successful last year and use that money to build the extra affordable homes, to rent and to buy, which are desperately needed by people in this country and by the construction industry, and which would be good for the economy?

[Mr Osborne]

As I was explaining to the hon. Member for Gedling (Vernon Coaker), the bank bonus tax was introduced by the previous Chancellor of the Exchequer, and it was his judgment that it would not work for another year because the banks would find a way of avoiding it. That is why we introduced a permanent bank levy not just for one year, but for each and every year. In any one year it raises more than the bank bonus tax net, so that is what we have done. It is pretty striking: Labour Members had 13 years in government to introduce a permanent bank tax; they did not do so, and they cannot carp from the sidelines now.

[Charlie Elphicke (Dover) (Con)]

If our gold had not been sold off some years ago, how much would it be worth today?

[Mr Osborne]

The gold was sold, I think on the advice of the current shadow Chancellor, at $3.5 billion—a princely sum, except that it would now be worth $19 billion.

[Several hon. Members]

rose—

ECOFIN: 17 May 2011

George Osborne Excerpts

Tuesday 10th May 2011 Written Statements

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

The Economic and Financial Affairs Council will be held in Brussels on 17 May 2011. The following items are on the agenda:

Regulation on short selling and certain aspects of credit default swaps

Following further work, ECOFIN will be asked to agree a general approach on the short selling regulation. The regulation intends to harmonise both short selling requirements across the EU and the powers that regulators may use in exceptional situations where there is a serious threat to financial stability or market confidence. The Government believe that proposals should not impact market efficiency and liquidity, in particular in relation to sovereign debt.

Draft general budget for 2012

The Commission will present its draft budget for 2012. The Government believe that, in proposing a 4.9% increase in payments, the draft budget for 2012 is unacceptable. In line with the agreement made between the UK, France, Germany, the Netherlands and Finland in December 2010, the Government’s opinion is that growth in the EU’s annual budget must be curbed, in order to reflect difficult economic conditions and tough measures taken by national Governments to cut spending. The Government intend to work with other member states to achieve the best possible deal for the taxpayer.

Savings taxation directive

The savings directive forms part of the EU’s “good governance in taxation” agenda, which complements G20 efforts to improve international tax co-operation and reflects the latest OECD standards on tax transparency. The Council may hold an orientation debate on amendments to the directive, which seek automatic exchange of tax information with the aim of combating cross-border tax fraud. The UK fully supports the aims of the amending directive, and hopes that the EU can move towards an agreement.

Financial sector taxation

The Commission will present an interim report to the Council on financial sector taxation. The Government are content with the report, which stresses the need to look at financial sector taxation in the round, notes the importance of establishing the purpose of any financial sector tax, and sets out next steps.

Commodity markets

Following discussion by Ministers at the informal ECOFIN in April, the Council will agree conclusions on commodity markets. The Government support the conclusions, which aim to: improve the efficiency and transparency of global commodity markets; improve supply responsiveness and productivity, especially in respect of the agricultural sector; and mitigate demand for commodities, in particular reducing the energy-intensity of future growth.

Financial support to Portugal

Following the request by the Portuguese authorities for financial assistance and subsequent discussion at the informal ECOFIN in April, ECOFIN is expected to adopt a Council recommendation to Portugal with a view to bringing an end to the situation of an excessive Government deficit and a Council decision on granting Union financial assistance to Portugal.

Review of the economic adjustment programme for Ireland

The Commission will present the outcome of the first and second quarterly reviews of Ireland’s programme by the IMF, Commission and ECB in April, and its assessment on whether to release the second tranche of funds. The Government expect the assessment to be broadly positive. The first tranche of the UK bilateral loan is available to Ireland following the programme’s third review, which is expected to take place in September 2011.

Financing climate change, preparation of UN meetings

In preparation for discussions by the United Nations, ECOFIN will be asked to endorse the EU report on “Fast Start” climate finance, and to approve Council conclusions on issues and next steps for international climate finance. The fast start report sets out details of the €2.34 billion of fast-start finance provided by the EU in 2010, and details of specific actions supported by this finance. The UK welcomes the report and hopes that any conclusions build substantively on previous Council conclusions, as well as demonstrating our commitment to delivering our long-term climate finance target.

Information on the informal ECOFIN meeting

The presidency will give a debrief of the April informal ECOFIN.

Informal ECOFIN (8-9 April 2011)

George Osborne Excerpts

Tuesday 26th April 2011 Written Statements

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

The informal Economic and Financial Affairs Council (ECOFIN) was held in Brussels on 8-9 April 2011. The Financial Secretary to the Treasury also represented the Treasury.

The informal ECOFIN began with an extended session of the Eurogroup to discuss Portugal’s request for financial assistance. Ministers released the following statement:

Ministers acknowledged the Portuguese authorities’ request for financial assistance. Ministers invited the Commission, the ECB, the IMF and Portugal to set up a programme and take appropriate action to safeguard financial stability.

In the context of a joint EU/IMF programme, the financial assistance package to Portugal should be financed on the European side within the framework provided by the European financial stabilisation mechanism (EFSM) and the European financial stability facility (EFSF).

Euro-area and EU financial support will be provided on the basis of a policy programme which will be supported by strict conditionality and negotiated with the Portuguese authorities, duly involving the main political parties, by the Commission, in liaison with the ECB, and the IMF. The preparations will start immediately to reach a cross-party agreement ensuring that an adjustment programme can be adopted by mid-May and implemented swiftly after the formation of a new Government.

The programme will be based on three pillars:

An ambitious fiscal adjustment to restore fiscal sustainability.

Growth and competitiveness-enhancing reforms by removing rigidities in the product and labour markets and by encouraging entrepreneurship and innovation, allowing for a sustainable and balanced growth and unwinding internal and external macro-economic imbalances, while safeguarding the economic and social position of its citizens. This should include an ambitious privatisation programme.

Measures to maintain the liquidity and solvency of the financial sector.

The set of measures announced by the Portuguese authorities on 11 March is a starting point in this regard.

We call on all political parties in Portugal to conclude swiftly an agreement on the adjustment programme and form a new Government after the upcoming elections with the ability to fully adopt and implement the agreed fiscal consolidation and structural reform measures. After an agreement has been reached with the Portuguese authorities and supported by the main political parties, the programme will be endorsed by the ECOFIN Council and the Eurogroup, in line with national procedures, on the basis of a Commission and ECB assessment.

The Ministers of the Eurogroup and ECOFIN, the Commission and the ECB are looking forward to ambitious fiscal adjustment, comprehensive structural reforms and measures to safeguard financial stability that will address the fiscal and structural challenges of the Portuguese economy in a decisive manner. It will thereby also help restore confidence and safeguard financial stability in the euro area.

Over lunch, Ministers discussed the economic governance package, with a focus on the set of indicators which will be used to monitor macro-economic imbalances. They also discussed the Romanian balance of payment assistance.

During the afternoon session, Ministers were joined by Central Bank governors. Discussions centred on financial stability and bank stress tests, where the Government believe that the EU needs rigorous tests with appropriate back-up plans. There was a clear signal that much had been achieved with the setting up of the new supervisory framework, but that momentum needed to be maintained to cement the roles of the European supervisory authorities and prevent future crises.

On the second day, discussions focused on commodity markets, a forward look to the G20, IMF and World Bank spring meetings, and the comprehensive response to the crisis.

ECOFIN

George Osborne Excerpts

Wednesday 30th March 2011 Written Statements

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

The Economic and Financial Affairs Council was held in Brussels on 15 March 2011. The following items were discussed:

Economic Governance

The Council agreed a general approach on the package of six legislative proposals aimed at strengthening economic governance in the EU, particularly in the euro area. This agreement respected the provisions in the UK’s protocol to the treaty. The UK negotiated a UK opt-out on the articles in the fiscal frameworks directive pertaining to fiscal rules and won a recital making clear that medium-term budgetary objectives referred to in the directive would not apply to the UK. Negotiations with the European Parliament will now take place with a view to finalising legislation by the summer.

Climate Finance

Ministers adopted Council conclusions on climate finance, which welcome and reaffirm the commitments on climate finance agreed at the UN negotiations in December 2010. The Government support these conclusions. ECOFIN will revisit climate finance following further work by the Commission, Economic and Financial Committee and the Economic Policy Committee. This work will set out the key elements of the mix of international and national, public and private finance instruments needed to deliver scaled-up financial flows after 2012.

Stability and Growth Pact Implementation

Hungarian and Polish Ministers informed the Council of measures they are taking in order to reduce their deficits below 3% of GDP, and an exchange of views followed. The Council called on them to ensure strict compliance with the recommendations it issued under the excessive deficit procedure. The Government agree that member states need to have credible deficit reduction plans in place.

Short Selling and Credit Default Swaps

The presidency updated Ministers on ongoing work on the draft regulation on short selling and credit default swaps. The intention of the regulation is to harmonise short selling requirements across the European Union and harmonise the powers that regulators may use in exceptional situations where there is a serious threat to financial stability or market confidence. The Government’s position is that proposals should not impact market efficiency and liquidity, in particular in relation to sovereign debt. Further work will continue on this regulation before returning to ECOFIN in May for general approach.

AOB

Reform of financial regulations

The Council took stock of progress in the area of financial services regulation following a presentation from Commissioner Barnier. The Government are pleased with the progress which has been made since the financial crisis. However, it is critical that any proposals going forward have a clear evidence base and that thorough, objective impact assessments are carried out, along with extensive consultations.

G20 ministerial meeting in Paris

French Finance Minister, Christine Lagarde, informed the Council of the outcome of a G20 meeting of Finance Ministers and central bank governors held on 18-19 February. The Government believe that the G20 meeting was productive, and it was significant to reach agreement on a set of indicators for assessing external imbalances that threaten the world economy.

Amendment of the Law

George Osborne Excerpts

Thursday 24th March 2011 Commons Chamber

[Ed Balls]

The reality was that we had a long period of sustained growth and low inflation, and we reversed the high unemployment of the 1980s and 1990s. We put behind us the instability of the Tory years by making—[Interruption.] If the Chancellor wants to make an intervention, we are still waiting.

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

Is the shadow Chancellor saying that the last Government abolished boom and bust?

[Ed Balls]

I noticed that the Chancellor did not choose to intervene with the answer that I was hoping for, but there we are. The fact is, when we came into government in 1997, we made the Bank of England independent and he opposed it.

We had a period of sustained growth and rising employment. The Conservatives said that the national minimum wage would cost jobs, but employment went up. Under the Conservatives child poverty doubled; under Labour it came down.

We had the longest sustained period of investment in the NHS since the second world war, but there was a global financial recession, which affected countries around the world. Who dealt with that? The British people should be thankful that it was not the Chancellor and his friends, because opposing nationalisation of the Royal Bank of Scotland and Northern Rock would have been a catastrophe for the British economy.

--- Later in debate ---

[Ed Balls]

There has been some confusion on this over the past 24 hours. We know from the OBR that it was told of the 1p cut in fuel duty so late that it could not even get it into its economic forecast. The Chancellor realised at the weekend that he was behind the curve, that he was not setting the agenda, that living standards were a rising issue and that Labour was making the case for fuel tax cuts, so he jumped in late with his 1p cut, but he did not have the courage to reverse his 3p rise. That is the reality. Had the Chancellor done things properly—I can give him some advice on this, because I know how to do things properly on North sea oil tax—he would have consulted the oil companies in plenty of time, explained what was happening, made the case, got their agreement, and then announced the policy in the Budget. I think that many of the oil companies did not find out about it until it was announced in the Budget. That was the problem.

Yesterday afternoon the Chief Secretary to the Treasury—as always, he is not here—was on a television programme about the Budget. He was asked, “How will you stop the oil companies simply passing on the cost in consumer prices?” He said that he did not know, but that he would monitor the oil companies closely. That was the problem. The Government did not do the work, and this was cobbled together at the last minute. That is why it has caused so much confusion and consternation in the past 24 hours. He needed a headline and a flourish to his speech, but he did not want to announce that they were cutting the winter fuel allowance—an announcement we would never have had at the end of a Labour Budget—so instead he announced a cobbled-together, last-minute 1p cut in petrol tax.

The Chancellor is not listening.

[Mr George Osborne]

I can see that the right hon. Gentleman wants to get this point on the winter fuel payment going. Will he confirm, therefore, that I am only following the plan set out in the last Labour Budget on the winter fuel payment?

Financial Statement

George Osborne Excerpts

Wednesday 23rd March 2011 Commons Chamber

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

Last year’s emergency Budget was about rescuing the nation’s finances and paying for the mistakes of the past. Today’s Budget is about reforming the nation’s economy, so that we have enduring growth and jobs in the future; and it is about doing what we can to help families with the cost of living and the high price of oil.

We understand how difficult it is for so many people across our country right now. That we are able now to set off on the route from rescue to reform, and from reform to recovery, is because of the difficult decisions we have already taken.

Those decisions have brought economic stability, and without stability there can be no sustainable growth and no new jobs. Without stability, Governments have to keep coming back to their citizens for more—more taxes and more spending cuts. In Britain, we do not have to do that today.

We have inherited a record budget deficit, but we have set out a credible, comprehensive plan to deal with it. We have had to undertake difficult measures, but we have already asked the British people for what is needed, and today we do not need to ask for more.

So this is not a tax-raising Budget. But nor can we afford a giveaway. Taken together, the measures I will announce today are fiscally neutral across the period. This is a Budget built on sound money; a Budget that encourages enterprise; that supports exports, manufacturing and investment; that is based on robust independent figures: a Budget for making things, not for making things up. Britain has a plan, and we are sticking to it.

In recent months, many other countries have seen their ratings downgraded and their borrowing costs soar. Our country’s fiscal plans have been strongly endorsed by the International Monetary Fund, by the European Commission, by the OECD, and by every reputable business body in Britain. For anyone who questions whether this matters in the real world, to real businesses and families, they should consider this. Market interest rates in Greece are at 12.5%, in Ireland they are close to 10%, and in Portugal and Spain they are 7% and 5%. Today our country’s market interest rates have fallen to 3.6%. We have a higher deficit than Portugal, Greece and Spain, but we have virtually the same interest rates as Germany. This is our powerful monetary stimulus to our recovering economy. Stability, credibility, lower interest rates—that is what we have achieved.

But stability is not enough. So today, in addition to the Red Book, we are publishing “The Plan for Growth”. For this Budget confronts the hard truth that has been ignored for too long. Britain has lost ground in the world’s economy and needs to catch up. In the last decade, other nations have reduced their business tax rates, removed barriers to enterprise, improved education systems, reformed welfare systems and increased exports. Sadly, the reverse has happened in Britain. We gambled on a debt-fuelled model of growth that failed. With the state now accounting for almost half of all income, we simply cannot afford to go on like this. Britain has to earn its way in the modern world.

I turn to the forecasts. Last November, I told the House that the recovery was going to be more challenging than recoveries from recessions in recent decades. That is inevitable when we have had the sharpest fall in output since the 1930s, the highest budget deficit in our peacetime, and the largest banking crisis in our entire history. But I said that thanks to the course we have set, the independent forecast was for our economy to grow in each of the next five years, for unemployment to peak this year and then fall, and for employment to rise through this Parliament. That remains the case in the independent forecast we published today.

Those forecasts have been drawn up by the Office for Budget Responsibility. This important change has transformed the way Budgets are put together. So instead of Chancellors fixing the figures to fit the Budget, they now have to fix the Budget to fit the figures. Yesterday, the legislation to put the Office for Budget Responsibility on a permanent, statutory and independent footing received Royal Assent. I am sure that the whole House will want to thank Robert Chote, Steve Nickell, Graham Parker and their whole staff for the very professional job they are doing.

Let me start with their growth forecasts. It has been known for Chancellors in recent years to rattle these off at great speed in the hope that no one will keep up or notice. I will not do that. Although average quarterly growth this year is set to be higher than was previously forecast, the annual forecast for 2011 has been revised to 1.7%. This the OBR attributes specifically to the weaker-than-expected final quarter of last year, the rise in world commodity prices, and the higher-than-expected inflation in the UK. However, the OBR points out that the effect, in its words,

“creates scope for slightly stronger growth in later years”

than previously forecast. So while it expects real GDP growth of 2.5% next year, it forecasts it will then rise to 2.9% in 2013; to 2.9% in 2014; followed by 2.8% in 2015.

The European Commission has also this month published its growth forecasts. These show that the UK is forecast to grow more strongly in the coming year than Spain, Italy, France, the average for the eurozone and the average for the European Union.

All countries have to steer a course between two central risks: the risk of a European sovereign debt crisis on the one hand, and, on the other, the risk that comes from rising global commodity prices. Food prices around the world have increased by nearly 50% since the beginning of last year. Oil has risen by 35% in just five months. That is why the OBR expects inflation to remain between 4% and 5% for most of this year, before dropping to 2.5% next year and then to 2% in two years’ time.

I have today written to the Governor of the Bank of England to confirm that the inflation target for the Monetary Policy Committee will remain at 2%, as measured by the consumer prices index. I can also confirm that the asset purchase facility set up by my predecessor will remain in place.

One cause of current instability is the conflict inside Libya. The whole House will praise the courage and professionalism of our armed forces, who are trying to bring that conflict to an end and save lives. I can confirm that the additional cost of military operations will be met entirely from the Treasury reserve.

The House will also know that last week I authorised for the UK to take part in a co-ordinated G7 currency intervention in support of the Japanese yen. Our hearts go out to the Japanese people, and this is one way in which Britain can help. It is still too early to say what lasting impacts the earthquake and tsunami will have on the world economy. But this is an opportunity for me to report that we had already decided to rebuild the UK’s foreign currency reserves, which are at an historically low level. We will purchase a range of high-quality assets, although unfortunately, with the price of gold now at a record high, we will not be able to replenish the gold reserves sold at a record low.

I turn now to the fiscal forecasts for our debt and deficit. Borrowing to fund the deficit this year is now set to come in below target at £146 billion. It will then fall to £122 billion next year, then £101 billion the year after, then £70 billion in 2013-14, then £46 billion, and then £29 billion by 2015-16. Inflation has had its impact, but crucially, the OBR assesses that next year’s structural deficit remains the same as forecast last November. In other words, the size of the task of repairing Britain’s finances is unchanged. Our national debt, as a share of our national income, is forecast to be 60% this year, before peaking at 71%, and then starting to fall, reaching 69% by the end of the period.

This leads me to one of the central tasks of the OBR: that of assessing the Government’s performance against their stated Budget goals in an open and independent way, so that we avoid repeating the disastrous experience of the so-called golden rule. Our fiscal mandate is to achieve a cyclically adjusted current balance by the end of the rolling five-year forecast period, which is currently 2015-16. We have supplemented that with a fixed target for debt, so that debt should be falling as a proportion of GDP by the year 2015-16 as well. I can report to the House that the OBR confirms that on its central forecast we will meet both these objectives—a balanced structural current budget and falling national debt—by the end of the Parliament. Indeed, the forecast remains that we will meet both these objectives one year earlier.

I said at the start that stability and fiscal responsibility were not enough. Our country has to compete if we are going to create growth and jobs. Britain has fallen behind many others in the world in the last decade. We have dropped from fourth to 12th place in the world global competitiveness league, and growth in our country has become so unbalanced. Consider this staggering truth: during the boom years before the bust, private sector employment actually fell in a region as important as the west midlands.

So today’s Budget is an urgent call for action for Britain. Private sector growth must take the place of Government deficits. Prosperity must be shared across all parts of the UK. Yes, we want the City of London to remain the world’s leading centre for financial services, but we should resolve that the rest of the country becomes a world leader in advanced manufacturing, life sciences, creative industries, business services, green energy and so much more. This is our vision for growth. Difficult decisions and major reforms are needed to make it happen, but the alternative is to accept Britain’s economic decline and a continuing fall in living standards for our population, and that is not an alternative anyone in this House should be prepared to accept.

This Budget sets for Britain these four economic ambitions: that Britain should have the most competitive tax system in the G20; be the best place in Europe to start, finance and grow a business; be a more balanced economy, by encouraging exports and investment; and have a more educated work force who are the most flexible in Europe. Let me now set out the measures that will achieve these ambitions.

First, on taxation, here’s the truth: Britain used to have the third lowest corporate tax rate in Europe. It now has the sixth highest. At the same time, our tax code has become so complex that it recently overtook India’s to become the longest in the world. From Adam Smith to Nigel Lawson, people have set out the principles of good taxation, and this Government declare these principles again for the modern age. Our taxes should be efficient and support growth. They should be certain and predictable. They should be simple to understand and easy to comply with, and our tax system should be fair, reward work, support aspiration and ask the most from those who can most afford the most.

In July last year, we set up the Office of Tax Simplification to provide independent advice on how to reduce the complexity of the existing system. I want to thank Michael Jack and John Whiting for the work that they have done. Following their recommendations, I can announce today that this Budget abolishes no fewer than 43 complex reliefs. This includes the millennium gift aid system, which we will not need for another 989 years. However, I have decided not to follow their advice to abolish the community investment tax relief, and instead I encourage people to take it up. But this Budget, at a stroke, removes over 100 pages from our tax code and begins the work of simplification.

In the last Budget, I announced that from next month welfare payments and public service pensions would be uprated in line with the consumer prices index. I said at the time that we should also consider uprating the tax system in the same way, so from April 2012 the default indexation assumption for direct taxes will move to CPI. There will be protection through this Parliament for those eligible for age-related, married couple and blind person’s allowances, and for employers’ national insurance contributions. The increase in the personal tax allowance already announced will vastly exceed anything lost through employee NICs uprating, and that is even before any further increases in that allowance. This will bring coherence to the tax and benefit system, and we look to moving indirect taxes on to the same basis when the fiscal position allows.

But there is one further step that we want to undertake that will dramatically simplify the tax system. For decades, we have operated income tax and national insurance as two fundamentally different taxes and forced businesses large and small to operate two completely different systems of administration, with two different periods and bases of charge. The resulting anomalies are legion, and it imposes totally unnecessary costs and complexity on employers and costs the taxpayer in the extra burden that it places on Her Majesty’s Revenue and Customs. So I am announcing today that the Government will consult on merging the operation of national insurance and income tax.

I am not proposing that we extend national insurance to pensioners, or to other forms of income, or that we abolish the contributory principle. Our purpose is not to increase taxes; it is to simplify them, and this huge task will therefore require a great deal of consultation and take a number of years to complete, but it is time we took this historic step to simplify dramatically our tax system and make it fit for the modern age.

Making our tax system more competitive is another challenge for the times we live in. Again, let us face facts. Other countries are quite deliberately making their tax systems more competitive and attracting multinational companies away from the United Kingdom. We could stand there and do nothing, but increasing the living standards of every hard-pressed family in the country depends on keeping companies, and the jobs, the investment and the tax revenues that come with them, here in the United Kingdom. So we will go ahead with the highly competitive tax rate on profits derived from patents in industries like pharmaceuticals; we will fundamentally reform the complex rules for controlled foreign companies and make them more territorial; and we will introduce new rules that effectively apply an ultra-competitive 5.75% rate on overseas financing income. This will give us a far more attractive system than France, America or Germany. I want Britain to be the place international businesses go to, not the place that they leave.

But today I want to do even more, so I can announce that from April this year, corporation tax will be reduced not just by the 1% I previously announced, but by 2%, and it will continue to fall by 1% in each of the following three years, taking our corporate tax rate right down to 23%—16 % lower than America, 11% lower than France and 7% lower than Germany—the lowest corporation tax in the G7. Let it be heard clearly around the world, from Shanghai to Seattle and from Stuttgart to Sao Paolo: Britain is open for business.

To ensure that this is not a net tax cut for banks, I am adjusting the bank levy rate next year to offset its effect. In each and every year of this Parliament, our permanent bank levy raises more in any one year than the last Parliament’s bank taxes.

The most competitive tax system in the G20 is the first of our economic ambitions. The second is that Britain becomes the best place in Europe to start, finance and grow a business. Again, let us face facts: we are not that today. In the last decade, countries such as Germany, Denmark, Finland and the Netherlands have all overtaken us in the international rankings of competitiveness. That is not surprising when the total cost of regulation imposed on business since 1998 is almost £90 billion a year.

So in today’s plan for growth, we take action: £350 million worth of specific regulations will go, including the costly dual discrimination rules in the Equality Act 2010. Lord Young’s recommendations on health and safety laws will be implemented in full; the no-win, no-fee legal services that prey on employers will be restricted; existing regulation will be scrutinised in a public consultation process; and from April, we are going to impose a moratorium exempting all businesses employing fewer than 10 people, and all genuine start-ups, from new domestic regulation for the next three years. We will also take this fight against regulation to Brussels, where this week my right hon. Friend the Prime Minister will be recruiting other European allies to ensure that our continent does not price itself out of the world.

We are also going to tackle what every Government have identified as a chronic obstacle to economic growth in Britain, and what no Government have done anything about: the planning system. Councils are spending 13% more in real terms on planning permissions than they did five years ago, despite the fact that applications have fallen by a third. Yes, local communities should have a greater say in planning, but from today, we will expect all bodies involved in planning decisions to prioritise growth and jobs, and we will introduce a new presumption in favour of sustainable development, so that the default answer to development is yes. We will retain existing controls on green belt, but we will remove the nationally imposed targets on the use of previously developed land. We will also allow certain use class changes, introduce time limits on applications and pilot, for the first time ever, auctions of planning permission on land.

Cumbersome planning rules and bad regulation stand in the way of new jobs, and so too does the shortage of finance. Small businesses are the innocent victims of the credit crunch, and that is why we have agreed with the banks a 15% increase in the availability of credit to small businesses. But the lack of start-up capital has long been a problem in the British economy. Too often we have great ideas in Britain, but it is other countries that exploit them, so today I announce sweeping changes to improve the generosity, the simplicity and the reach of the enterprise investment scheme. From April this year, income tax relief will increase from 20% to 30%. Next year, we will double the amount that any individual can invest through EIS, increase the size of company that can qualify for investment, and raise the limit on the amount that can be invested in a company by 400%.

Next week, my right hon. Friends the Prime Minister and the Business Secretary will launch “Start-up Britain”, a new campaign by entrepreneurs for entrepreneurs, supported by many of Britain’s most successful firms, that will help people to start and grow businesses. Today we can add to that help. From 6 April this year, I am doubling the size of entrepreneur’s relief to £10 million. Let Britain be the home of enterprise in an age when people can invest all over the world.

It is time too that we ended the uncertainty around the taxation of non-domiciles. They are welcome in this country, but I have always believed that they should pay something in return for their special tax status. The last Government followed our advice and introduced a £30,000 charge for those who had lived here for seven years. I think we can ask more from those who have been here even longer, so I am increasing the charge to £50,000 for non-doms who have been in the country for 12 years. This will raise over £200 million in the coming years but, in return, and to encourage investment in our country, I am removing the tax charge when non-doms remit foreign income or capital gains to the UK for the purpose of investing in a British business, and we will introduce a statutory residence test. To end the speculation and uncertainty, and to provide stability, I confirm that I will be making no further changes to the taxation of non-domiciles in this Parliament.

In an age when business and capital and people can increasingly move anywhere, high tax rates can do real damage. That is true for high corporate tax rates, and it is true for high personal tax rates too. They crush enterprise, undermine aspiration and often undermine tax revenues as people avoid them. I am clear that the 50% tax rate would do lasting damage to our economy if it were to become permanent. That is why I regard it as a temporary measure, just as my Labour predecessor, the right hon. Member for Edinburgh South West (Mr Darling), did when he introduced it. I have said before that now would not be the right time to remove it when we are asking others in our society on much lower incomes to make sacrifices, for we are all in this together, but I think it is sensible to see how much revenue it actually raises. I have asked Her Majesty’s Revenue and Customs—[Interruption.] I have asked HMRC to find out the truth when the self-assessment forms start coming in.

Of course, taxation must be fair. It is right that the wealthiest should pay more than others, and it is especially wrong when they avoid taxes. I will have much more to say later on in this speech on tax avoidance and evasion, but there is one area that needs extra work in the coming months—the taxation of very high value property, where evasion and avoidance are widespread and some of the wealthiest are not paying their fair share. So as well as reviewing revenues from the 50p tax rate, we will also be redoubling our efforts to find ways of ensuring that owners of high value property cannot avoid paying their fair share.

Help for small businesses, a boost for enterprise, reforms to planning, and cuts to existing regulations and a moratorium on new ones, are all part of our ambition to make Britain the best place in Europe to start, grow and finance a business.

Our third ambition is to encourage investment and exports as a route to a more balanced economy for Britain. In “The Plan for Growth” that we publish today, we set out specific measures we can take to help a wide range of businesses. In life sciences, we will radically reduce the time it takes to get approval for clinical trials; in our digital and creative industries, we will improve the intellectual property regime; and in our professional and business services—one of our unsung success stories—we will reform our burdensome money laundering regime now, promote the UK as the global centre of legal arbitration, and launch a new, trusted business visa service.

Our retail sector includes many small shopkeepers who are anxious about the impact of coming business rate rises. The last Government planned that the current rate relief holiday for small businesses should end in October this year. I do not think that that would be right, so I can announce that, at a cost to the Exchequer of £370 million, I will extend the rate holiday for small businesses for another year to October 2012.

We will also take action to help the construction industry. Stamp duty will now be levied on the mean value of the houses being purchased within a portfolio, not the bulk cost, and real estate investment trusts will be simplified to encourage home building. But average mortgage deposits are close to 30%, and this puts home ownership beyond the reach of many, many families. This is not fair.

So I can announce today that, from the proceeds of this year’s bank levy, we will fund a £250 million commitment to first-time buyers. A new shared equity scheme, First Buy, will be available for first-time buyers who want to purchase a newly built property, but who cannot afford the high deposits. This will help 10,000 families get on the housing ladder for the first time. The previous Government intended to end the temporary changes to the support for mortgage interest scheme next January. Instead, we will extend them for another year. That will reduce mortgage arrears for around 100,000 out-of-work home owners.

Manufacturing is crucial to the rebalancing of our economy. Over the last decade, the share of the economy accounted for by financial services increased by over two thirds, while manufacturing’s share fell by almost a half. Under this Government, manufacturing is now growing at a record rate, and 14,000 more jobs have been created in the sector in the last three months. To help that continue, the Government are announcing plans today to make our export promotion more entrepreneurial and create new export credits to help smaller businesses; launch Britain’s first technology and innovation centre for high-value manufacturing; and fund a further nine new university centres for innovative manufacturing.

Science is one area where Britain already has an advantage over many other countries, and it is central to our future as a place to create businesses. That is one reason why I protected the science budget from cuts last year. I can tell the House that I have been able to find—again from this year’s extra bank levy—an additional £100 million to invest in new science facilities at the Babraham research campus in Cambridge, the Norwich research park for environmental and life sciences, the International Space Innovation Centre at Harwell, and the national science and innovation campus at Daresbury.

But if Britain is really to become a home of innovation, we want research and development to take place not just in our great universities, but in our smaller businesses too. One of our greatest high-tech innovators, James Dyson, has urged me to increase the support that they get. I have listened to him, and have gone even further than he recommends. From April this year, the small companies research and development tax credit will rise to 200%, and from next year it will rise again, to 225%.

We also want to encourage manufacturers to invest in the latest machinery and technology, so I propose to double the limit on capital allowances for short-life assets from four to eight years. We will also extend the allowance for the renovation of business premises in assisted areas—which was due to expire next year—for a further five years. Supporting the private sector across the whole of the United Kingdom is central to our economic ambitions.

Savings in the Department for Transport mean that we can also afford £200 million of additional investment in our regional railways. We will go ahead with the £85 million Ordsall chord scheme, linking Manchester’s Victoria and Piccadilly stations and significantly reducing journey times between Liverpool and Leeds. We can commit—I know that hon. Members have been calling for this, as we have just been hearing—to the Swindon-to-Kemble redoubling scheme, which will complement our electrification of the Great Western main line to Wales. We can also find another £100 million to help councils repair the winter potholes on our roads.

Helping all parts of our country to succeed is also the purpose behind the new enterprise zones that we launch today. There have been reports that we would be able to fund 10 new enterprise zones. Today I confirm that instead we will fund 21 new enterprise zones. Businesses will get up to a 100% discount on rates, new superfast broadband and the potential to use enhanced capital allowances in zones where there is a strong focus on manufacturing. In return for radically reduced planning restrictions, we will let local authorities keep all business rate growth in their zones for a period of at least 25 years to spend on development priorities.

The first 10 enterprise zones will be in urban areas of highest need, but also the highest potential. They will be in Birmingham and Solihull, Leeds, Liverpool, Greater Manchester, the Tees valley, Tyneside, the Bristol area, the black country, Derbyshire and Nottinghamshire, and Sheffield. Tomorrow, my right hon. Friends the Prime Minister and the Deputy Prime Minister will announce some of the specific locations of the new enterprise zones. I can confirm that a further zone will be located in London, where I have asked the Mayor to choose a suitable site. A further 10 enterprise zones will be announced in the summer. I want local enterprise partnerships all over the country to come forward with proposals.

Responsibilities are devolved in Northern Ireland, Scotland and Wales, so we will work with the Administrations so that they, too, can enjoy the benefits of this policy. In Northern Ireland, the Treasury will publish a paper tomorrow on how we help its private sector to grow. To deal with the unique issues posed by the Irish Republic’s business tax regime, the paper will consider the case for Northern Ireland having an even lower rate of corporation tax than the rest of the UK. I look forward to engaging with all parties there on the way forward.

There is one other issue that affects a specific part of our country, and that is the very high water bills for customers in the south-west, because of the geography there, particularly for those on lower incomes. We will come forward with public money to help bring those bills down.

Let me turn now to the opportunity presented by the green energy revolution and our determination to be the greenest Government ever. We have already announced our ambitious renewable heat incentive and support for low-emission cars, and changes to the company car tax regime today will increase that support. Our green deal to reduce energy bills for homes will be introduced next year. I can confirm that we will act to incentivise and encourage its take-up. We are pioneering new carbon capture and storage technology, with £1 billion already provided. Future projects will be funded out of general spending rather than a complex new levy, but we need to take two further, bold steps if we are to make the green energy revolution a reality.

First, as I have long argued, investment in green energy will never be certain unless we bring some stability to the price of carbon. Today we become the first country in the world to introduce a carbon price floor for the power sector. The price will start at around £16 per tonne of carbon dioxide in 2013, and move to a target price of £30 per tonne in 2020. That will provide the incentive for billions of pounds of new investment in our dilapidated energy infrastructure. To ensure that customers get a fair deal, we will closely follow developments in the energy sector in the light of the Ofgem review published on Monday. At the same time, I am extending the climate change agreements to 2023 and increasing the climate change levy discount on electricity for those who sign up from 65% to 80% from April 2013. This will help our most energy-intensive industries. Green taxes will increase as a proportion of total tax revenues, as we promised.

The second bold step that we take today is the creation of the green investment bank, to support low-carbon investment where the returns are too long term or too risky for the market. We have already committed £1 billion to the bank; today I commit £2 billion more, funded from asset sales and underwritten by the Treasury. This will enable the green investment bank to start operation one year earlier than planned, in 2012. It will leverage an additional £15 billion of private sector investment in green projects over this Parliament. I can also confirm today that from 2015-16, and subject to our overall debt target being met, we will allow the green investment bank to borrow and invest in a better future.

So, a green investment bank with its resources trebled; a new carbon price floor; new capital allowances for manufacturing; new support for home builders and first-time buyers; an economy where growth happens across the country and across all sectors—that is our ambition.

That leads me to our fourth ambition: to create a more educated work force who are the most flexible in Europe. Britain’s working-age population has lower skills than the populations of America, Germany and France, and that is probably the biggest problem facing our economy in the future. That is why we are undertaking far-reaching reform of our schools and universities, and funding a pupil premium and additional early-years support for our most disadvantaged children in poverty. It is also why we commissioned Alison Wolf’s impressive report.

The Government are committed to funding new university technical colleges, which will provide 11 to 19-year-olds with vocational training that is among the best in the world. The curriculum is being developed in close co-ordination with both local universities and leading employers. I commend Ken Baker on getting the new colleges up and running in our manufacturing heartlands. To date, the Government have announced that we will fund 12 new university technical colleges. I can tell the House that we will provide funding to double that number to at least 24.

We will also deal directly with the challenge of youth unemployment that has been on a steady rise for the last seven years, and give people direct contact with the workplace. Instead of 20,000 young people benefiting from our new work experience scheme, as we planned, we will increase that number fivefold to 100,000 places over the next two years. In Austria, Germany and Switzerland, around one in four employers offer apprenticeships. In England fewer than one in 10 do. That has got to change, after 10 years of a Labour Government.

Last year, my hon. Friend the Skills Minister published a skills strategy and confirmed the largest-ever expansion in adult apprenticeships. Today, I am funding another 40,000 apprenticeships for young unemployed people. There are currently only 1,500 higher level apprenticeships across the whole of England. This Budget provides for 10,000 more. That brings a total of 250,000 more apprenticeships over the next four years as a result of this Government’s policies—a Government backing what works: real training, secure jobs and more growth.

We should not talk about those at the start of their working life without also talking about those who are coming to the end of their working lives and looking to retirement. I am very proud that it was this coalition Government who took the decision to re-link the basic state pension to earnings and guarantee its increase through a triple lock. This would simply not have been affordable, as Adair Turner’s report argued, without an increase in the state pension age. The state pension age is set to rise to 66 by 2020. I can tell the House that we will now seek, hopefully with all-party support, a new, more automatic mechanism for future increases in the state pension age based on regular, independent reviews of longevity. This is another major reform that will help Britain to live within her means.

We also need to make sure that our public service pensions are fair to those who give their working lives to help others, and fair to the taxpayers who have to fund them. Today we publish the result of our consultation on the discount rate, which shows that a more appropriate rate would be inflation plus GDP growth. This reinforces our case for increasing the employee contributions by an average of 3%. Indeed, the new discount rate could be used to justify further contribution rises. As part of the wider reforms, I am not proposing to ask for more than the 3% average.

John Hutton has now completed his final report, which looks at the pension benefit. I am sure that Members in all parts of this House will want to thank him for a very impressive piece of work—[Interruption.] Or at least in part of the House. I confirm today that the Government accept Hutton’s recommendations as a basis for consultation with public sector workers, unions and others. There should be no cherry-picking on either side. I believe that this House should also recommend similar changes to the pensions of MPs.

We should also address the state pension system, which has become unbelievably complex. If people cannot work out what they are going to get in retirement through the second state pension or how much will be clawed back by the means tests, then they cannot work out what they need to save. So the Pensions Minister, the Pensions Secretary and I have worked together to develop options including a new single-tier pension. It would be simple, it would be based on contributions, and it would be a flat rate, so people know what to expect—and it would cost no more than the current system. We currently estimate that this new single-tier state pension would be worth around £140 per week. It will not apply to current pensioners, and it will take years fully to come into effect.

As with the other major reforms that I have announced today to simplify our tax system, to improve our economic performance and to reform our public sector pensions, this Government are doing the right thing for the long term: the most competitive corporate taxes; the best place to start up and run a business; an investing, exporting, greener, manufacturing and more balanced economy; a better educated work force; a fairer pensions system. These are our ambitions for Britain, with the measures to match.

Let me now turn to personal taxes and duties, and let me start by noting that a society should not just be judged by the strength of its economy alone, but also by the compassion of its people—[Interruption.] Well, that is what I happen to think, anyway. The Culture Secretary and I have been working on a series of substantial reforms that will support giving, from the largest donations to the coins collected in the charity bucket.

First, we will dramatically simplify the administration of gift aid. Instead of asking charities to submit a written record of every donation made, we will by 2013 pay for a much easier online system. Secondly, we will encourage wealthy people in our society to give even more. The gift aid benefit limits will be increased from £500 to £2,500 so that charities and museums can say thank you properly. We will consult in the coming year on how to encourage the donations of pre-eminent works of art and historical objects to our nation in return for a tax deduction. We will introduce from April next year this major change to our inheritance tax system: if you leave 10% or more of your estate to charity, the Government will take 10% off your inheritance tax rate. Let us be clear. No beneficiaries will be better off as a result of this policy—just the charities, to the tune of £300 million. I want to make giving 10% of your legacy to charity the new norm in our country.

The third reform we make to the charitable taxes is about not the biggest donations but the smallest. We will introduce a new scheme where gift aid can be claimed on small donations, up to a total of £5,000 a year per charity, without the need for donors to fill in any forms at all. That means gift aid on the contents of the collecting tin and the street bucket, and 100,000 charities will benefit to the tune of £240 million. Together, these represent the most radical and most generous reforms to charitable giving for more than 20 years. Do the right thing for a charity, and the Government will do the right thing for you. It is a big help for the big society.

But our charity does not extend to those in our society who seek to avoid paying their fair share of taxes. Tax avoidance and evasion mean that we have to ask more from working families, and that is not fair. Unfortunately, not enough has been done in recent years to tackle this injustice. HMRC estimates that £14 billion was lost through avoidance and evasion in 2008. Today we publish our new strategy paper on tackling tax avoidance and we take specific measures to shut down the open abuses that have been allowed to continue for too long.

We will close down three forms of stamp duty land tax avoidance, tighten capital gains rules for companies, and end the practice of disguised remuneration, which sees highly paid employees offered tax-free, lifetime loans that are never repaid; and we are going to tackle the exploitation of low value consignment relief that has left our high street music stores fighting a losing battle with warehouses in the Channel Islands. In total, on the numbers audited by the independent OBR, the tax avoidance measures in this Budget raise around £1 billion a year—that is £4 billion over the Parliament. We are doing more today to clamp down on tax avoidance than in any Budget in recent years.

That gives us more resources, in a fiscally neutral budget, to help those families who do pay their taxes, but who are struggling with the daily cost of living. We have already taken steps to help from this April. I am glad to report that, following measures in my Budget last year, every local authority in England has chosen to freeze council tax in the coming year. Compared with the amount that council tax could have risen by, this freeze will save a family in an average band D property £72 a year. In two weeks’ time, the child tax credit for lower-income families will increase by an additional £255. I can confirm today that in the coming year all workers in the armed forces, the prison service and the NHS, and teachers and civil servants, earning £21,000 a year or less will receive a pay uplift of £250.

As I said last year, the national insurance rate rise that the last Government announced will have to go ahead, but because we have increased the threshold, it will actually be cheaper to employ people on incomes of less than £21,000 than it is today. That is how we have stopped Labour’s jobs tax. Anyone earning less than £35,000 a year will also be better off because in 14 days’ time, the personal income tax allowance—the amount people can earn tax free—will go up by £1,000. That is the largest rise in our history. That means, in real terms, around £160 extra per year or £200 in cash terms for 23 million taxpayers.

The coalition agreement commits this Government to real increases in the personal allowance each and every year and sets this country the goal that no one earning less than £10,000 should be caught in the income tax net. This Budget today takes another step towards that valuable goal. I can confirm that from April next year, the personal tax allowance will increase by a further £630 to £8,105. That is another real increase of £48 extra per year, or £126 in cash terms—together with this year’s rise, a total of £326 extra money each year for those working hard to pay for their family’s needs. It means that just 10 months into office, this coalition Government have taken 1.1 million low-paid people out of tax altogether. And one more thing: last year, we restricted the allowance increase to basic rate taxpayers; this year, we have not. The result is that no more people will be pulled into the higher rate tax band as a result of this Budget.

Let me turn now to excise duties—first, air passenger duty. Let me be straight with the House: we had hoped that we could replace the per passenger tax with a per plane tax. We have tried every possible option, but have reluctantly had to accept that all are currently illegal under international law. So we will work with others to try to get that law changed. In the meantime, we are consulting today on how to improve the existing and rather arbitrary bands that appear to believe that the Caribbean is further away than California. We will also seek to bring private jets, which pay no duty at all, into the scope of taxation. The wealthiest should not escape the tax that the ordinary holidaymaker has to pay. I can tell the House that with the hefty duty rise last year and with the cost pressures on families, we think it would be fair to delay this April’s air passenger duty rise to next year.

Let me turn to duties on alcohol. We have already announced plans to increase duty on the strongest beers and cut in half the duty paid on low-alcohol beers. Beyond that, I can tell the House I have no further changes to announce to the rates of alcohol duty put in place by the previous Government. As usual, these changes will come in at midnight on Sunday. As announced again by my predecessor, tobacco duty rates will increase by 2% above inflation. However, it is clear that the structure of the tobacco duty regime is being exploited to produce cheaper cigarettes, so we will change the regime to narrow the differential between these lower-cost brands and the rest, and between cigarettes and hand-rolled tobacco. This will reduce smoking and improve our nation’s health. These tobacco duty changes will come into effect at 6 pm this evening.

I turn now to other excise duties. Rates of vehicle excise duty will increase by inflation only and we will freeze rates for heavy goods vehicles to help our hauliers. I am also proposing to increase the approved mileage allowance payments. This mileage rate has not increased at all since 2002, making those who depend on their car for work increasingly worse off. It will now increase from 40p to 45p per mile and I can tell the House that we will extend this relief to cover volunteers travelling as passengers, as charities and others have been calling for for many years.

All other duty rises will remain exactly as planned by the previous Government—except fuel duty. The price of petrol has become a huge burden on families. In the last six months, the cost of filling up a family car such as a Ford Focus has increased by £10. This rise has also hit businesses hard, especially small businesses. It is important that when shocks like the steep rise in the oil price occur, a responsible Government are able to listen and respond.

Let us be clear about what is within our control and what is not, so that we do not raise false hopes. British Governments are not in charge of the world’s oil price, and as we have seen, events like those in the middle east can push the cost of petrol at the pump higher. But British Governments are in charge of the duty that we levy on petrol, and the previous Cabinet put in place, before they left office, a new fuel duty escalator that involved seven fuel duty increases. Three have already taken place, adding just over 3p to the price of petrol. The third step on the escalator is due to come into effect next week, and that would add almost another 5p to the price of a litre of petrol.

I have made it clear that I would listen to the concerns put to me by so many people. Many have suggested that we should use the extra revenues we automatically get from the North sea. It is true that they go up when the oil price rises, but the OBR confirms that rising oil prices also cause other tax revenues across the rest of the economy to fall by a similar amount, and I am not prepared to undermine the public finances like that.

Others in this House have suggested that we create a separate VAT rate for petrol.The Treasury has examined this proposal. It would not fully offset the 5p rise that is coming, and it would take six years to come into effect—and that is because it turns out to be illegal. So I have decided to reject this approach and do something different.

The North sea oil tax regime was most recently changed in 2006, when the price of oil stood at $66. It is now almost double that amount. That means that oil companies are making unexpected profits on oil prices that are far higher than those that they based their investment decisions on. Other oil-producing countries have a tax regime that automatically regulates returns when prices rise. We do not, and the North sea is too mature to introduce such a regime now. Instead, we can do something else: we can introduce a fair fuel stabiliser.

From tomorrow, the supplementary charge levied on oil and gas production will increase from 20% to 32%. Even after this, profits on a barrel of oil are forecast to be higher in the next five years than in the last five years, but this will raise an additional £2 billion of revenue, and we will use the new tax money to do this: first, we will delay the inflation rise in duty planned for next week until next year and also delay the April 2012 inflation rise until the following summer; secondly, the fuel duty escalator that adds an extra penny on top of inflation every year will be cancelled—not just for this year or next year, but for the rest of this Parliament.

But I do not want important investment in the North sea lost, so if the oil price sustains a fall below $75—and we will consult on the precise figure—we will reintroduce the escalator and reduce the new oil tax in proportion. That is how it will work: no escalator when the oil price is high; no extra tax on the profits of North sea oil companies if the oil price falls and stays low. That is the fair fuel stabiliser, and this is the result for Britain’s hard-pressed families: I have made sure there will be no fuel duty rise this year; I have cancelled the fuel duty escalator when the oil price is high; and one final thing, as well as stopping these fuel duty rises, I am today cutting fuel duty by 1p per litre. This will take effect in petrol stations from 6 pm tonight.

I know that by itself this will not end the pressure on family budgets, but we have done what we can to help—help for families, help for businesses: a Government who listen and help. There were some who said that this year my job was to help families with the cost of living, but there were others who said, no, my task was to back enterprise, support business and undertake far-reaching reform to help the economy grow. It is the central understanding of this Government, and core to our strategy, that these are not two separate tasks: they are one and the same thing.

We are only going to raise the living standards of families if we have an economy that can compete in the modern age. So this is our plan for growth. We want the words:

“Made in Britain”, “Created in Britain”, “Designed in Britain” and “Invented in Britain”

to drive our nation forward—a Britain carried aloft by the march of the makers. That is how we will create jobs and support families. We have put fuel into the tank of the British economy. I commend this Budget to the House.

Oral Answers to Questions

George Osborne Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

1. What assessment he has made of the effects on the economy of the trade in mortgage-backed securities and collateralised debt obligations.

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

The rapid increase in mortgage-backed securities and collateralised debt obligations contributed to a build-up of excessive and unstable levels of private debt in the UK in the years running up to the financial crisis. Although we would wish to see a properly regulated securitisation market reopened to help with lending, this must happen under a much more effective supervision regime. That is why we are abolishing the failed tripartite system and have restored to the Bank of England the responsibility for monitoring overall levels of debt in the economy. We have already established a new Financial Policy Committee to assess risks to the stability of the system, such as the emergence of excessive debt.

[Bill Esterson]

Although I accept the analysis in the first half of the right hon. Gentleman’s answer, I wonder whether the fact that financial services companies donated 51% of all funds to the Conservative party has led to a conflict of interests that prevents adequate regulation.

[Mr Osborne]

I think that I pointed out in an earlier exchange that an ex-Lehman Brothers and RBS banker contributed to the leadership campaign of the shadow Chancellor, so if the hon. Member for Sefton Central (Bill Esterson) wants to make that point again, and if you would allow, Mr Speaker, perhaps he could intervene.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Does the Chancellor agree, as I do, with the Governor of the Bank of England in asserting that if we are to avoid another banking crisis in this country, we must have a complete separation between commercial and investment banks, which of course create these collateralised debt obligations?

[Mr Osborne]

If my hon. Friend will allow me, I will keep my personal views on this matter private while we await the publication of the independent commission that has been set up to look at this issue, and which I, the Business Secretary and the whole House will have to consider. It is producing its interim report in April, and will produce a final report in September. Let us remember that the commission was set up by this Government to ask the difficult questions of the kind that he is asking, because we are determined not to repeat the mistakes of the past.

[Sheila Gilmore (Edinburgh East) (Lab)]

2. If he will bring forward proposals for a scheme to provide looked-after children with a savings account or trust fund funded by contributions from the Exchequer; and if he will make a statement.

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

In October, the Government announced that we will create a new tax-free children’s savings account to be known as the junior ISA. We expect the accounts to be available from this autumn, and will be setting out details of how they will work next week. As the hon. Lady and the right hon. Member for Wythenshawe and Sale East (Paul Goggins), who is my constituency neighbour, will know, Barnardo’s and Action for Children have proposed that these accounts be used to support saving for looked-after children. I know that these children face particular challenges, and I can tell the House that the Department for Education will work with others to make the necessary funding available to ensure that we can provide the support that they deserve. We will work with charities and interested parties to develop detailed proposals funded by the Government, so that junior ISAs can best support these children.

[Sheila Gilmore]

There were warm words on this last summer when the child trust funds were abolished, and there are warms words now, but will the Chancellor tell us when such a savings scheme, backed by the Government, will be introduced for looked-after children?

[Mr Osborne]

I have just announced the money for the scheme that the hon. Lady asked me about, and we will now engage with Barnardo’s and Action for Children. I have seen their report, “On Our Own Two Feet”, and we will provide the funding to make the scheme a reality for looked-after children.

[Mr Edward Timpson (Crewe and Nantwich) (Con)]

As chairman of the all-party group on looked-after children and care leavers, I warmly welcome my right hon. Friend’s announcement today. Is he aware that the proposal has widespread cross-party support? The fact that the Government have listened to all representations and taken steps to make provision for the most vulnerable children in our society is extremely welcome.

[Mr Osborne]

I thank my hon. Friend for those words of support. I know that he has personal experience, through the work his family have done with children in care, of the contribution that society can make to helping these children. Frankly, all Governments have struggled to provide a decent level of care for the children to whom we owe the greatest obligation. As I said, I will engage with interested Members of Parliament, particularly my constituency neighbour, the right hon. Member for Wythenshawe and Sale East, and the two charities that produced the report to make this a reality and get it up and running as soon as possible.

[Mr David Hanson (Delyn) (Lab)]

May I remind the Chancellor that he broke his original election promise—a promise he made in the general election and ripped up on 3 January—to provide a trust fund for the poorest third of families? I welcome his announcement today, but we will look at the detail. We pushed on this issue in Committee on the abolition of the child trust fund Bill, and my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) has pushed outside that Committee. We welcome this announcement, but can the Chancellor say what that contribution will be and, given that this is a Department for Education issue, as he has said, whether the provision will extend to Scotland, Wales and Northern Ireland, as the trust fund originally did?

[Mr Osborne]

First, of course we will ensure that the scheme is available across the UK, although the exact design has to be determined with the charities. I have listened to the case made not so much by those on the Opposition Front Bench—if the right hon. Gentleman does not mind my saying so—but by the right hon. Member for Wythenshawe and Sale East and the two charities concerned. The sum of money involved will be around £5 million.

[Paul Goggins (Wythenshawe and Sale East) (Lab)]

There is a bit of good neighbourliness breaking out on the eve of the Budget. I welcome the announcement that the Chancellor has made this afternoon. Three quarters of young people leaving care do so with no savings whatever, yet they are expected to be almost totally self-reliant. As ever, the devil will be in the detail, but I am certainly prepared to work with the charities and his Ministers to ensure that we get a scheme that is effective in giving support to care leavers.

[Mr Osborne]

I thank the right hon. Gentleman for his support—we are one big happy coalition on this issue. I will ask Treasury officials to engage with him so that we get this right. We have to work in a way that is not bureaucratic, but gets money to those who really need it. Having looked at the issue, I think perhaps the best route is to work closely with the charities that know the sector best. Let us work together and make the scheme work.

[Albert Owen (Ynys Môn) (Lab)]

3. If he will estimate the revenue to the Exchequer attributable to receipts from the increase in the standard rate of value added tax on road fuel.

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[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

12. What fiscal measures he has taken to support economic growth in the manufacturing sector.

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

Manufacturing is now expanding after years of contraction. In order to support it, the June Budget contained four reductions in the main rate of corporation tax and a cut in the small companies rate from 21% to 20%. The manufacturing sector is expected to gain over £250 million annually when the package is fully implemented. We have committed ourselves to 75,000 more apprenticeships and nine university-based centres for manufacturing. Tomorrow’s Budget will set out further details of the Government’s plan for sustainable, private sector-led, balanced growth.

[Andrew Stephenson]

On Friday I visited Kirk Environmental, a company in Nelson that specialises in turning waste into electricity and usable biogas. It is experiencing rapid sales growth internationally, is recruiting more locally, and is at the forefront of the United Kingdom’s transition to a low-carbon economy. What incentives is my right hon. Friend providing to encourage such companies to invest more in Pendle and in the United Kingdom?

[Mr Osborne]

As I am sure my hon. Friend knows, in the spending review we allocated £860 million to the new renewable heat incentive, and earlier this month, in the House, my right hon. Friend the Secretary of State for Energy and Climate Change announced the introduction of the first phase of the scheme. It provides financial incentives to support a range of technologies and fuels, including those involving the use of biogas. I hope that that will help excellent companies such as Kirk in my hon. Friend’s constituency.

[Stephen Metcalfe]

Does the Chancellor regret the fact that manufacturing declined by 50% under the last Government? What plans has he to reverse that trend as we rebalance our economy, so that companies actually start to make things again in the United Kingdom, as they are already doing in South Basildon and East Thurrock?

[Mr Osborne]

My hon. Friend is right. The share of manufacturing in our economy halved during the years of the Labour Government. However, there is good news today: the CBI industrial trends survey shows that total order books are growing for the first time in three years. We are determined to move from an unbalanced economy that placed all the bets on the City of London to an economy that grows across the regions and in all sectors.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The trade-weighted exchange rate has fallen by 20% in the last few years. Manufacturing has not increased as much as we expected, and there are even worse figures for the investment industry. What is the Chancellor doing to ensure that we gain the advantages of that exchange rate depreciation?

[Mr Osborne]

I do not know why Opposition Members want to talk down the British economy. What the chief economist at the CBI said contrasts with the hon. Gentleman’s remarks about manufacturing. The chief economist said:

“The outlook for UK manufacturing output growth is very encouraging.”

We are going to support manufacturing. We have the corporation tax cut that I announced in last June’s Budget, and we have the new centres for innovation and manufacturing. We are going to help manufacturing, whereas Labour shrank manufacturing.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

Talking of making things, a small manufacturing firm in my constituency is investing in the development of a new engine. If it moved into production, hundreds of jobs would be created in the 15th most deprived area in the country. Will the Chancellor tell us why the Government have cut Labour’s investment allowances, which would be just the thing to help and support a small and vital manufacturer like the one in my constituency?

[Mr Osborne]

Manufacturers, including the one to which the hon. Lady has referred, benefit to the tune of £250 million from the reductions in corporation tax that we announced in the June Budget. That is what we have done to support British industry. As I have said, under the Labour Government British industry shrank: while the share of the economy taken by financial services grew by a third, the manufacturing share halved.

[George Freeman (Mid Norfolk) (Con)]

Does my right hon. Friend agree that, as we see signs that business confidence in the economy is being restored, tomorrow’s Budget presents a key opportunity to support the high-technology entrepreneurs who put their own wealth at risk in starting the businesses of tomorrow?

[Mr Osborne]

Yes, we will support enterprise and innovation in tomorrow’s Budget, but my hon. Friend will have to be patient and wait until then to hear about the precise measures that are involved.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

Manufacturers up and down the country and the whole House are awaiting the Chancellor’s long-delayed growth strategy to be published tomorrow, but I have a copy of that document with me today. It says:

“Growth comes first for this Government”

and that their strategy will

“underpin private confidence, investment and job creation.”

The Chancellor has no need to worry however, as I will not be handing this document to the press. I read it last night and, frankly, there is nothing in it worth leaking. Has this document been audited by the Office for Budget Responsibility? Is the Chancellor really clear that getting rid of maternity and paternity rights and enterprise zones will boost jobs and growth in our economy? Is this going to be enough to stop the Budget growth forecast tomorrow being downgraded for this year and next?

[Mr Osborne]

I am not sure that that is the document in question—but if the right hon. Gentleman hands it over, I will have a look—because we are not getting rid of maternity and paternity rights, so I do not know where he got that from. Besides, I have a copy of his document, and it contains all the spending commitments he has been making. If he cannot control his own Front-Bench colleagues, how on earth is he going to control the nation’s finances?

[Ed Balls]

Is this really the best the right hon. Gentleman can do? I bet he will have Treasury officials scrabbling around all afternoon trying to deliver a further 1p cut in corporation tax tomorrow and a further tax cut for the banks. Let us wait and see. The fact is that a year ago inflation was low and unemployment was falling, and a year on, as we see today, inflation is up to 4.4% and borrowing is higher than a year ago, not to mention unemployment. If the Chancellor will not listen to me, will he listen to his colleague who said:

“We must not cut Government spending too soon and risk plunging a fragile recovery back into recession. Cuts without economic growth will not deal with the deficit”?

The Business Secretary was right. Why will the Chancellor not listen?

[Mr Osborne]

The right hon. Gentleman really needs to brush up on his question practice, but let me say this to him: the idea that we were somehow left a fantastic economy by the Labour party is quite the most ludicrous claim in the country, and the only reason he makes it is because he was responsible for the economic mess that left this country on the brink of bankruptcy.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

One of this country’s great manufacturing success stories is world-leading subsea engineering that has grown up on the back of investment in the North sea oil and gas industry, based in my constituency but working throughout the United Kingdom. What reassurance can the Chancellor give my constituents that the Government will build on their constructive relationship to ensure a fiscal regime that maximises investment in North sea oil and gas production and exploration and that boosts the manufacturing that supports that?

[Mr Osborne]

Of course we want to ensure that we prolong the life of the North sea fields. One area on which we can work with the industry is ensuring greater certainty about decommissioning costs and about the tax regime that was operated under previous Governments and how that will apply over the next 10 years. I hope to work with the industry on that.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

9. If he will review the pace of proposed reductions in public expenditure to take into account GDP figures for the fourth quarter of 2010.

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[Tom Brake (Carshalton and Wallington) (LD)]

T1. If he will make a statement on his departmental responsibilities.

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

The core purpose of the Treasury is to ensure the stability of the economy, promote growth and jobs, reform banking and manage the public finances so that Britain finally starts to live within her means.

[Tom Brake]

More than 1,500 people in Sutton will be taken out of paying income tax altogether from next month as a result of the increase in the tax threshold. What estimate has the Chancellor made of the number of people who will be taken out of paying tax altogether in 2015, when the tax threshold is increased to £10,000?

[Mr Osborne]

I think my hon. Friend is getting a little ahead of himself. The commitment is to a real-terms increase in the personal tax allowance in each and every year. People will have to wait for the Budget tomorrow. The increase of £1,000 in the personal tax allowance has taken 900,000 people of out of tax.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

T4. Writing in The Independent at the end of 2009, the then shadow Chancellor said:“If I become Chancellor, the Treasury will become a green ally, not a foe.”Will that pledge be reflected in tomorrow’s Budget?

[Mr Osborne]

Yes, it will.

[Mike Freer (Finchley and Golders Green) (Con)]

T2. The Financial Services Authority’s mortgage market review stated:“Our existing regulatory framework has been shown to be ineffective”and that“regulatory reform is needed to reduce the probability and severity of future financial crises”.Does the Minister agree?

[Bill Esterson (Sefton Central) (Lab)]

T5. Can the Chancellor confirm that between 1990 and 1997 the proportion of tax paid on a litre of fuel rose from 59% to 75%? Can he also confirm that the proportion of tax paid then fell by more than 10% between 1997 and 2010?

[Mr Osborne]

What I can confirm is that Labour left us with six duty rises. Now they are wriggling desperately to find some excuse to get off the hook they put themselves on.

[John Pugh (Southport) (LD)]

T3. Can the Chancellor tell me when the Treasury’s detailed investigation of the feasibility of incorporating a general anti-avoidance rule in British tax law will conclude?

[Mrs Linda Riordan (Halifax) (Lab/Co-op)]

T6. Following the announcement last week by Lloyds of more job cuts, many of them in my constituency, to a work force who have showed total loyalty to the company, and as the Government own a large percentage of the company—a company that made more than £2 billion profit last year—will the Chancellor intervene to protect people’s jobs and livelihoods, and stop the constant drip-feed of job losses by Lloyds?

[Mr Osborne]

Of course we are concerned when people lose their jobs, including in the banking sector, but what Lloyds is undergoing is the process of merging HBOS with Lloyds bank, which was waved through by the previous Government.

[Dr Julian Huppert (Cambridge) (LD)]

T7. I have had the privilege of talking to the Chancellor about a charter for entrepreneurs that I drew up, based on discussions with entrepreneurs in and around Cambridge. I am sure he will not want to pre-empt what he will say tomorrow, but can he say that he has looked carefully at some of those issues, in particular reforming the enterprise investment scheme and enterprise management incentives, and making research and development tax credits easier for small companies?

[Mr Osborne]

I have a copy of the hon. Gentleman’s document here. He has some excellent ideas on promoting enterprise and entrepreneurs. He will have to wait until tomorrow to see how we respond to them.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

T8. Can the Chancellor not see that the figures —current and forecast—for inflation, unemployment, growth, borrowing and even the deficit are all way off his target? Can he not see that the plan is not working, or is it a sad case of him not wanting to see?

[Mr Osborne]

What I would say to the hon. Gentleman is this: we inherited a record budget deficit and there was no credible plan to deal with it. We put a plan in place and it is supported by the international community. The result of all this is that we have interest rates that are closer to Germany’s, despite having been left a deficit that is bigger than Portugal’s or Greece’s.

[Mr Andrew Tyrie (Chichester) (Con)]

Will the Chancellor make every effort to keep the House informed about the cost of our operations in Libya by providing an estimate at the earliest opportunity? Will he also tell us whether those costs will be funded from the Ministry of Defence budget or drawn from the Treasury reserve?

[Mr Osborne]

My hon. Friend alerted me to the fact that he might ask this question. The House will understand that it is too early to give a robust estimate of the costs of the operations in Libya, but I can say that they should be modest compared with some other operations, such as Afghanistan. The MOD’s initial view is that they will be in the order of tens of millions of pounds, not hundreds of millions. I can tell the House today that whatever they turn out to be, the additional costs of operations in Libya will be fully met from the reserve.

[Mr Kevan Jones (North Durham) (Lab)]

T9. The Chancellor said on Sunday that the present financial difficulties were the result of “a decade of overspending”, so can he tell the House why in July 2008, 11 years into a Labour Government, the then Leader of the Opposition, now the Prime Minister, told the CBI conference“we are sticking to Labour’s spending totals”?

[Mr Osborne]

What we did on coming into office was set out a credible plan to reduce the budget deficit that has moved this country out of the financial danger zone. One month ago, the shadow Chancellor told his entire Front-Bench team not to make any spending commitments, and after that they committed to more than £10 billion of spending commitments. They have opposed £50 billion of the cuts. It is completely incredible, and that is why they cannot find any reputable organisation in the world to agree with them.

[Mr Douglas Carswell (Clacton) (Con)]

How high would inflation need to be before we halted further quantitative easing, stopped printing money and raised interest rates?

[Mr Osborne]

The Bank of England’s Monetary Policy Committee is of course independent. It is set a target by the Chancellor, and I expect the Bank to pursue that target.

[Graeme Morrice (Livingston) (Lab)]

T10. Contact a Family and the Children’s Trust have been campaigning for a change to the current rule that suspends disability living allowance payments for children under 16 once they have spent 84 days in hospital. The cost of this is around £3 million, compared with the overall deficit reduction measures of £80 billion. As this is a financially driven measure, will the Chancellor undertake to discuss the funding issue with colleagues in the Department for Work and Pensions so that some of the most severely disabled and sick children and their families continue to receive the financial support required when they need it most?

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[Stewart Hosie (Dundee East) (SNP)]

The Chancellor knows that the long-term solution to the spikes in fuel prices is a stabiliser or a regulator, and hopefully we will hear about that tomorrow. However, is he aware that the price rises in fuel over the past four of five weeks equate to an additional £1,000 a year for running every truck in the country? Does he not agree that that is hugely inflationary and utterly unsustainable?

[Mr Osborne]

Of course, the very sharp rise in the world oil price has posed a challenge to lots of economies—all but the oil-exporting economies. That is one of the headwinds currently facing the global economy. Specifically on fuel duty and other issues, the hon. Gentleman will have to wait for the Budget.

[Andrea Leadsom (South Northamptonshire) (Con)]

Will my right hon. Friend undertake very carefully to consider improving the diversification of financial services provision in the way that United Kingdom Financial Investments Ltd divests itself of taxpayers’ shareholdings in the banks?

[Mr Osborne]

I am very happy to consider a number of ideas that have been put forward, but we have not yet reached that stage. If we sold the bank shares today, we would still be making a loss as a nation. That is an indication of the scale of the banking crisis. When we come to put those banks back in the private sector, I am sure that there will be a healthy debate in this Parliament and elsewhere about how we treat the proceeds.

[Andrew Gwynne (Denton and Reddish) (Lab)]

Ministers will be aware that there is a sunset clause in the Debt Relief (Developing Countries) Act 2010, which comes into effect in June. Does the Treasury have a view about renewing this important landmark legislation, which tackles the worst abuses of vulture funds?

[Jesse Norman (Hereford and South Herefordshire) (Con)]

Is my right hon. Friend aware that the Governor of the Bank of England confirmed to me recently in the Treasury Committee that without the current austerity measures, our international borrowing rates would be some 3% higher?

[Mr Osborne]

Of course, the Governor of the Bank of England is one of many people who have pointed out that there was no credible plan when we came into office and that we have put a credible plan into place.

[Mr Chuka Umunna (Streatham) (Lab)]

The Chancellor and other Ministers have cited investor confidence as the reason why they cannot revise their original plan for fiscal consolidation, but Jonathan Portes, the immediate former chief economist at the Cabinet Office, said:

“This is not a justification, economic or otherwise, for”

not changing policy. He said that

“it relies on an odd view of market psychology, one that says markets have more confidence in governments that never adjust policy, even when it is sensible, from an economic perspective, to change course.”

Why is he wrong?

[Mr Osborne]

Our country’s credit rating was on negative watch when we came to office and as a country we did not have a credible plan to reduce the budget deficit. Since that plan has been put in place we have been able to see the effects because our market interest rates and our spreads over bunds have come down. We have interest rates that are closer to Germany’s despite, as I have said, having a budget deficit left to us that was higher than either Greece’s or Portugal’s.

[Richard Harrington (Watford) (Con)]

Would my right hon. Friend the Chancellor like to inform the House which organisations have made representations to him that the deficit should be halved over the course of this Parliament?

[Mr Osborne]

The Guardian newspaper.

[Ian Paisley (North Antrim) (DUP)]

The Chancellor might know that my constituent, Jenifer Herald, employs 40 people in Northern Ireland in a number of Subway cafés. The chief executive officer of that company has written to the Chancellor to say that inconsistent VAT policies for toasted sandwiches are damaging the growth of that industry. Does the Minister intend to review how VAT applies to toasted sandwiches and does he, like me, want to get his toasted sandwiches at a reasonable price?

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[Mr Osborne]

I certainly do. This country is spending £120 million a day on debt interest, which is now one of the largest items of Government spending. These are taxes we raise from people and money we borrow to pay debt interest. The truth about Labour’s plan is that it would mean billions of pounds more in debt interest—something that will become clear later in the Parliament.

[Jim McGovern (Dundee West) (Lab)]

I am sure the Chancellor and his Front-Bench colleagues will be aware of the recent Scottish Affairs Committee report on the computer games industry in the UK, which states that there are “compelling reasons” for introducing tax relief. Will he tell me, the House and people in my constituency, where the industry is very important, just what progress has been made?

[Jessica Lee (Erewash) (Con)]

May I welcome the recent visit by the entire Cabinet, including of course my right hon. Friend the Chancellor, to the city of Derby, near my constituency? Manufacturers and wealth creators have been waiting for a long time for some support in the east midlands, and I would be grateful if my right hon. Friend could set out what plans are in place to assist that important area.

[Mr Osborne]

At that meeting at Rolls-Royce, John Rose made a very compelling case for how little we had done as a country to support our manufacturing sector. We will set out policies tomorrow to assist, and we have already, as I said, put in place four annual reductions in the corporation tax. More broadly, we have to get away from a model of growth that was pursued over the last decade—based on excessive debt, and growth in one sector, the City of London, in one corner of the country, the south-east. We must have more balanced and sustainable growth in the future.

[Ian Murray (Edinburgh South) (Lab)]

Does the Chancellor of the Exchequer recall saying at the end of 2007:

“Today I can confirm for the first time that a Conservative Government will adopt these”—

Labour’s—

“spending totals…to…the year 2010-11”?

Does he regret calling the article, “Tories cutting services? That’s a pack of lies”?

[Mr Osborne]

We got into office in 2010-11, and we abandoned those spending plans for the years ahead.

[Stephen Barclay (North East Cambridgeshire) (Con)]

The Chancellor has a strong commitment to open and transparent government. Will he therefore ask his officials to look again at the number and value of special severance payments paid by foundation trusts, which must be reported to his Department but which his Department is not currently willing to disclose?