Charter for Budget Responsibility

George Osborne Excerpts

Wednesday 8th July 2015 Written Statements

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

Today I have published a draft updated “Charter for Budget Responsibility”, copies of which have been deposited in the Libraries of both Houses. It sets out a new fiscal framework to entrench a commitment to reach surplus and maintain it in normal times.

The draft charter includes modified guidance to the Office for Budget Responsibility and has been published in line with section 6(4) of the Budget Responsibility and National Audit Act. This requires that if the Treasury proposes to modify the guidance to the Office for Budget Responsibility included in the charter, a draft of the modified guidance must be published at least 28 days before the modified charter is laid before Parliament. The updated charter will be laid before Parliament, and a debate and vote scheduled, in the autumn of 2015.

Attachments can be viewed online at: http://www.parliament.uk/writtenstatements

[HCWS87]

Financial Statement

George Osborne Excerpts

Wednesday 8th July 2015 Commons Chamber

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

This is a Budget that puts security first. It is a Budget that recognises the hard work and the sacrifice of the British people over the past five years and says that we will not put that at risk; we have a job to do and we are here to get on with it. This will be a Budget for working people—a Budget that sets out a plan for Britain for the next five years to keep moving us from a low wage, high tax, high welfare economy to the higher wage, lower tax, lower welfare country we intend to create.

This is the new settlement. From a one nation Government, this is a one nation Budget that takes the necessary steps and follows a sensible path for the benefit of the whole of the United Kingdom. This is a Conservative Budget that can be delivered only because the British people trusted us to finish the job, because they know that the only way to have a strong NHS, strong schools and a strong defence is to build a strong economy. That is how we were elected, and that is exactly what we are now going to do.

The British economy that I report on today is fundamentally stronger than it was five years ago. We are growing faster than any other major advanced economy. Our businesses have created 2 million more jobs. Living standards are rising strongly. Our long-term economic plan is working. But the greatest mistake this country could make would be to think all our problems are solved. We have only to look at the crisis unfolding in Greece as I speak to realise that, if a country is not in control of its borrowing, the borrowing takes control of the country. Britain still spends too much; it borrows too much, and our weak productivity shows that we do not train enough, build enough or invest enough. This we are determined to change. We will be bold in transforming education, bold in reforming welfare, bold in delivering infrastructure and bold in building the northern powerhouse. We will be bold in backing the aspirations of working people. This is a big Budget for a country with big ambitions. It is a Budget that sets the way to secure Britain’s future.

Let me turn to the latest forecasts from our independent Office for Budget Responsibility. We thank Robert Chote and his colleagues for their hard work. We now have Budgets that fit the economic forecasts, instead of economic forecasts that were fixed to fit the Budget. At the March Budget, it was thought that the British economy had grown by 2.6% last year. We now know that it grew by 3%. But the global economic risks are rising. The US economy has slowed, so too has China, and even before the Greek crisis intensified this week, the forecasts for global growth had been revised down this year to 3.2%. It is all the more reason to get our own house in order.

For 2015, the OBR forecasts growth at 2.4%. That is faster than America, faster than Germany and twice as fast as France. For the second year in a row, Britain is expected to have the strongest economic growth of any major advanced economy in the world. In 2016, the OBR has growth unchanged at 2.3%, and then it is revised up to 2.4% in the following year—a level of strong, steady growth that it predicts for the rest of the decade. This growth is driven by stronger private consumption, and by stronger private investment, too. Indeed, business investment is now 31.9% higher than it was in 2010, and is revised up again this year. Now we need to see investment at home matched by exports abroad. Our decision to become a founder member of the new Asian Infrastructure Investment Bank is driven by our determination to connect Britain to the fastest-growing parts of the world, and our decision to seek reform to the EU is driven by our determination that this part of the world shall not price itself out of a prosperous future.

Higher investment leads to more jobs, which brings me to the OBR forecasts for employment. Over 2 million more people have the security of work as a result of this Government’s long-term economic plan. The OBR forecasts that under the current economic conditions, almost 1 million more jobs will be created over the next five years. Our ambition is to go further, and create 2 million more jobs on the road to full employment. To help achieve that progressive goal, we set out today how we will make work pay.

Jobs are not created by accident. They are created when businesses have confidence—the confidence to invest, to grow and to hire; confidence that comes because Britain is getting its house in order. So we seek to create a country that can truly pay its way. The budget deficit is now less than half the 10% we inherited, and economic security is returning, but all that progress is at risk if we do not finish the job. That means more than just eliminating the deficit; it means running a surplus to get our dangerously high levels of debt down.

That brings me to the first of the key judgments in this Budget—how fast do we cut the deficit? My answer is this: we should cut the deficit at the same pace as we did in the last Parliament. We should not go faster; we should not go slower. At this pace, the national debt is lower as a share of our national income in every future year than when I presented the Budget in March, and it is achieved without a rollercoaster ride in public spending.

This is why: first, our tax receipts are stronger than forecast, showing that the recovery is firmly entrenched; secondly, as a strong majority Government, we have been able to get on with making extra savings in this financial year; and thirdly, we can make faster progress in returning our banks, including RBS, to where they belong—the private sector. Indeed, the sale of Government assets this year will deliver the largest privatisation proceeds of all time, higher than the previous record in 1987. With stronger tax receipts, more asset sales and a strong Government who are getting on with the job, we can achieve a smoother path to the same destination, with a surplus a year later in 2019-20, but the national debt lower and that same surplus higher. For this is a Budget that puts economic security first.

Many difficult but necessary decisions are required to save money, and this will be done with moderation but determination. This is a one nation Government who do the best thing for the economy and the right thing for the country. This plan is reflected in the forecasts for debt and deficit produced today by the Office for Budget Responsibility. The deficit was 10.2% of national income in 2010. This year, it is forecast to fall to 3.7%—one third of the deficit we inherited. It then falls again to 2.2% in 2016-17, down to 1.2% the year after, and then to just 0.3% in 2018-19. The following year, 2019-20, we move into a budget surplus at 0.4%, which is then maintained the year after at 0.5% of GDP. In structural terms, the OBR judges that this will be the largest surplus in at least 40 years—Britain back in the black, and in its strongest position for almost half a century.

This is, of course, all reflected in the amount of cash Britain has to borrow each year. In 2010, Britain was borrowing a staggering and unsustainable £153 billion a year. In March, the OBR forecast that we would borrow less than half of that, or £75.3 billion, this year. In this Budget, it has revised borrowing down this year to £69.5 billion. Borrowing then falls to £43.1 billion next year, £24.3 billion in 2017-18, and down to just £6.4 billion the year after. In 2019-20, we move into a surplus higher than previously forecast of £10 billion, which rises to £11.6 billion the year after—Britain finally doing the responsible thing and raising more money than it spends.

Five years ago, we inherited a situation in which our national debt as a share of our national income was soaring. This year, that national debt share is falling, bringing to an end the longest continued rise in our national debt since the 17th century. It is falling now, and it continues to fall in every year of the forecast, down from 80.3% this year to 79.1% next year, then down again to 77.2% in 2017-18, 74.7% the year after, and 71.5% the year after that, before falling again to 68.5% in 2020-21. Britain has turned a corner and left the age of irresponsibility behind.

Having come this far, there can be no turning back. We should aim for a new settlement across the political spectrum where it is accepted that, without sound public finances, there is no economic security for working people; those who suffer when Governments run unsustainable deficits are not the richest, but the poorest; and therefore in normal economic times Governments should run an overall budget surplus, so that our country is better prepared for whatever storms lie ahead. In short, we should always fix the roof while the sun is shining.

Today, I publish the new fiscal charter that commits our country to that path of budget responsibility. While we move from deficit to surplus, this charter commits us to keeping debt falling as a share of GDP each and every year and to achieving that budget surplus by 2019-20. Thereafter, Governments will be required to maintain that surplus in normal times—in other words, when there is not a recession or a marked slowdown.

Only when the OBR judges that we have real GDP growth of less than 1% a year, as measured on a rolling four-quarter basis, will that surplus no longer be required. The Chancellor of the day will have to set out their plan with clear targets to restore the nation’s finances to health and the House of Commons will test the credibility of that plan and vote on those targets. This is sensible, pragmatic and keeps Britain secure. We will put the new fiscal charter to a vote in this House this autumn, and I invite broad cross-party support for it.

To meet the new charter, further difficult decisions need to be taken to live within our means. We will take these decisions in a balanced and fair way. I can confirm that the analysis produced today shows that the richest are paying a greater share of tax than they were at the start of the last Parliament. And more than that, we are continuing to devote a greater share of state support to the most vulnerable. As I said they would, those with the broadest shoulders are bearing the greatest burden, for we are all in this together. And in the last fortnight we have seen independent statistics showing that since 2010 child poverty is down, and so is inequality. That comes on top of a record number of women in work, and the gender pay gap at an all-time low—all good news that should be welcomed on both sides of the House.

The fiscal plan set out in the Budget requires around £37 billion of further consolidation over the Parliament. Today, I set out how we will find just under half of that—£17 billion. We have found annual savings of £12 billion from welfare and £5 billion from tackling tax evasion, avoidance and planning and imbalances in the tax system. The other half will largely come from Government Departments through savings and cuts and will be set out at the spending review that the Chief Secretary and I will conduct this autumn. However, no year will see cuts as deep as those required in 2011-12 and 2012-13.

Of course, I am conscious that a huge amount has already been done to increase efficiency across Whitehall, with administrative budgets down by more than 40% in real terms, but there is still much more we can do. There is also a simple trade-off between pay and jobs in many public services. I know that there has already been a period of pay restraint, but we said last autumn that we would need to find commensurate savings in this Parliament, so to ensure that we have public services we can afford, and to protect more jobs, we will continue recent public sector pay awards with a rise of 1% per year for the next four years.

Public spending should reflect public priorities and we have to make choices. Our priority is the national health service. We will fund fully the plan the NHS has itself produced for its future, the Stevens plan. That plan requires very challenging efficiency savings across the health service, which must be found, but it also requires additional Government funding. Our balanced approach means that I can today confirm that the NHS will receive, in addition to the £2 billion we have already provided this year, a further £8 billion. That is £10 billion more a year in real terms by 2020. It is proof that you can only have a strong seven-day NHS if you have a strong economy, and it is proof that the NHS is only truly safe in Conservative hands.

I have set out the difficult choices we are going to face on Government spending and the priority we will accord to our national health service. I turn now to combating tax evasion, avoidance and aggressive tax planning. In Budget after Budget, we have done more to combat that than any Government before us. We inherited a system where bankers boasted of paying lower tax rates than their cleaners and some multinationals shifted all their profits offshore. We have stopped these blatant abuses that were allowed to flourish, and many others, but we promised the British people we would do more and find a further £5 billion a year, and I can confirm we have done so.

We are boosting HMRC’s capacity, with three quarters of a billion pounds of investment to go after tax fraud, offshore trusts and the businesses of the hidden economy, tripling the number of wealthy evaders it pursues for prosecution and raising £7.2 billion in extra tax.

We are going to change the law to stop the use of losses that abuse our controlled foreign companies regime, and make sure investment fund managers pay the full capital gains tax rate on their carried interest.

We will stop corporates artificially increasing the value of stock for tax purposes, and to focus the employment allowance on employment we are restricting it so that companies where the director is the sole employee will no longer be able to claim.

We are consulting today on how to deal with the increasing abuse of the rules around disguised employment when working through a personal service company, and we are going to add tough new penalties to our general anti-abuse rule and name and shame serial users of failed avoidance schemes. These people should have nowhere to hide.

The non-domicile tax status is a long-standing feature of the UK tax system—in place since 1914—that plays an important role in allowing those from abroad to contribute to our economy before returning to their permanent home, and many countries have some version of this tax status.

Simply abolishing it altogether would, as Ed Balls correctly noted, probably cost the country money. Many of these people make a considerable contribution to our public life and to tax revenues, but there are some fundamental unfairnesses in the non-dom regime that I am putting a stop to today.

It is not fair that people who are born in the UK to parents who are domiciled here can later in life claim to be non-doms and live here. It is not fair that non-doms with residential property here in the UK can put it in an offshore company and avoid inheritance tax. From now on they will pay the same tax as everyone else. Most fundamentally, it is not fair that people live in this country for very long periods of their lives benefit from our public services and yet operate under different tax rules from everyone else.

Non-dom status was meant to be temporary, but it became permanent for some people. Not any longer. I am today abolishing permanent non-dom tax status. Anyone resident in the UK for more than 15 of the past 20 years will now pay full British taxes on all worldwide income and gains. We will consult to get the detail right. All these non-dom measures will come into effect in April 2017 and they will raise £1.5 billion in extra tax for the Exchequer over this Parliament. British people should pay British taxes in Britain, and now they will.

Turning to corporate tax rules, we will also broaden the base for corporation tax by removing, for future transactions only, the annual deduction for acquired reputational value. For big companies with profits over £20 million a year, we will bring forward corporation tax payment dates so that tax is paid closer to the point at which profits are earned. That is fair and more in line with what we are doing in personal tax, and it is what almost all other G7 nations do.

Banks make a key contribution to our economy, but they also need to make a fair contribution. It is important that they help pay down the debts built up during the banking crisis, but equally important that they go on creating jobs, not just in London but in Edinburgh, Leeds, Birmingham, Bournemouth and across the country. The new remit I am issuing today for the Financial Policy Committee highlights the importance of productive investment, innovation and competition in finance.

Our bank levy was introduced to raise revenue and increase the stability of balance sheets, and it has worked, but now it risks doing harm unless we change it. So I will, over the next six years, gradually reduce the bank levy rate, and after that make sure it no longer applies to worldwide balance sheets. But to maintain a fair contribution from the banks, I will introduce a new 8% surcharge on bank profits from 1 January next year. By getting this balance right, it means we will actually raise more money from the banks this Parliament, but at the same time make our country a more competitive place to do business.

We have also taken action to make sure that consumers get a better deal from another important industry: insurance. The costs of premiums are down for families, and today we are announcing a major review of the regulation of claims management companies and we will cap the charges they can apply to their customers.

Britain’s insurance premium tax is well below tax rates in many other countries. I am therefore today raising insurance premium tax, which applies to only one fifth of all premiums, to 9.5%, effective from this November. With these measures I am putting in place an approach for taxing banks and insurers over this Parliament which is sustainable, stable and fair.

In each year, we have been able to use money from the banking fines paid by those who represent the worst of values to support those in uniform who demonstrate the best of British values. Today we announce funding for the Defence Medical Welfare Service and the Royal Commonwealth Ex-Services League. We are supporting the incredibly courageous members of our special forces who are injured, and, in the 75th anniversary of the Victoria Cross and George Cross Association, quadrupling the annual annuity we pay to those who demonstrated the highest valour and whom I had the honour of meeting yesterday.

In the week of the poignant anniversary of the 7/7 attacks, we should recognise, too, that our victims of terrorism overseas have no permanent memorial. We will now fund one, as well as a specific memorial to those murdered in Tunisia. We are committing £50 million to expand the number of cadet units in our state schools to 500, prioritising schools in less affluent areas, and we are going to support the Children’s Air Ambulance by funding an extra helicopter.

In every Budget, I also find an opportunity to fund the commemoration of famous events from our history and the buildings that symbolise them. This Budget is no exception. The RAF’s group fighter command centre in west London was the place where the battle of Britain was directed from and it badly needs repair. I want to thank the new Member my hon. Friend the Member for Uxbridge and South Ruislip (Boris Johnson) for bringing to my attention the dilapidated state of his campaign bunker. Let its renovation stand as a monument to the heroes of the battle of Britain and the days when aeroplanes flew freely over the skies of west London.

I turn now to the great economic challenge we face on productivity, for this is the key to delivering the financial security that families see when living standards rise. And it will ensure that Britain becomes what we want it to be—the most prosperous major economy in the world by the 2030s. That is within the grasp of our generation, provided we take the big decisions. On Friday we will set out our plan for productivity, to help realise this ambition. I want to thank my new Treasury colleague Jim O’Neill for his work as a world-leading economist in putting it together. Major British businesses, led by Sir Charlie Mayfield, have told me that they want to be part of the solution to this great challenge and we very much welcome that.

Let me today set out the key parts of that plan. First, on transport, four fifths of all journeys in this country are by road, yet we rank behind Puerto Rico and Namibia in the quality of our network. In the past 25 years, France has built more than 2,500 miles of motorway and we have built just 300. In the last Parliament I increased road spending, even in difficult times, and set out a plan for £15 billion of new roads for the rest of this decade, but we need a long-term solution if we are going to fix Britain’s poor roads.

Vehicle excise duty was used to fund our roads, but not any more. And because so many new cars now fall into the low carbon emission bands, by 2017 over three quarters of new cars will pay no VED at all in the first year. That is not sustainable and it is not fair. If someone can afford a brand new car, including some of the most expensive models available, they can pay no VED. If they can afford only an older, second-hand car, they have to pay more tax. Only a Labour Government could have designed something so regressive.

So this is what we will do. From 2017, for brand-new cars only, we will introduce new VED bands. The duty in the first year will be set according to emissions, like today, but updated for new technology. Thereafter there will be three duty bands: zero emission, standard and premium. For standard cars—that covers 95% of all cars sold in the UK—the charge will be £140 a year. That is less than the average £166 that motorists pay today. There will be no change to VED for existing cars: no one will pay more in tax than they do today for the car they already own. In total, we will only raise the same amount of revenue from VED in the future as we do today, but that revenue will be secure for the long term.

And I will return this tax to the use for which it was originally intended. I am creating a new roads fund. From the end of this decade, every single penny raised in vehicle excise duty in England will go into that fund to pay for the sustained investment our roads so badly need. We will engage with the devolved Administrations on how the money is allocated there. Tax paid on people’s cars will be used to improve the roads that they drive on. It is a major reform to improve the infrastructure and productivity of our economy, and deliver a fairer tax system for the motorist.

We will also consult on extending the deadline for new cars and motorbikes to have their first MOT test from three years to four years, which would save motorists over £100 million a year. I can also confirm that there will be no changes to the plans for fuel duty I set out in March: fuel duty will remain frozen this year.

Productivity means building more roads. It also means giving people the skills they need to secure a better job. It is to our national shame that we are almost the only advanced country in the world where the skills of our 16 to 24-year-olds are no better than those of our 55 to 64-year-olds. The education reforms we started in the last Parliament have begun to address this problem, and we are going further in this Parliament by tackling the coasting schools that simply are not good enough.

We have already doubled the number of apprenticeships to 2 million; now we are committed to 3 million more. To fund these apprenticeships and make sure they are of high quality we have to confront this truth: while many firms do a brilliant job training their workforces, too many large companies leave the training to others and take a free ride on the system, so we are going to take a radical and, frankly, long overdue approach.

We are going to introduce an apprenticeship levy on all large firms. Firms that offer apprenticeships can get more back than they put in. Britain’s great businesses will train up the next generation—3 million more apprenticeships with the security that will bring. The money will be directly controlled by employers, and we will work with business on how to do this. It is exactly the sort of bold step we need to take if Britain is going to raise its game.

Next, we have got to secure the success of our university sector, which is one of the jewels in the crown of the British economy. When we reformed student funding in the last Parliament, we were told by those who so opportunistically opposed us that it would put people from low-income backgrounds off going to university. Instead, we now see a record number of these students applying and succeeding. It is a triumph of progressive reform.

Now we are removing the artificial cap on student numbers, so we do not have to turn away from our universities people who want to go and who have the right grades. But we cannot afford to do this unless we tackle the cost of student maintenance grants, which is set to almost double to £3 billion over this decade. There is also a basic unfairness in asking taxpayers to fund the grants of people who are likely to earn a lot more than them.

The previous Labour Government actually abolished these grants, before reintroducing them. These grants have now become unaffordable. If we do not tackle this problem, our universities will become underfunded and our students will not get places. I am not prepared to let that happen, so from the 2016-17 academic year we will replace maintenance grants with loans for new students. The loans only have to be paid back once they earn over £21,000 a year. To ensure university is affordable to all students from all backgrounds, we will increase the maintenance loan available to £8,200, the highest amount of support ever provided.

To ensure our university system is sustainable, we will consult on freezing the loan repayment threshold for five years, and we will link the student fee cap to inflation for those institutions that can show they offer high-quality teaching. We will open the whole sector to new entrants who can deliver the highest standards. It is a major set of reforms to make sure Britain continues to have the best universities in the world. It is fair to students, fair to taxpayers and vital to secure our long-term economic future.

Britain’s weak productivity is also driven by the fact that too much of our economic strength is concentrated in this capital city. This is unhealthy and unproductive, and we must achieve a better settlement for the future, but not by pulling London down. One of the first pieces of advice I received in the Treasury was to cancel the plan for the Crick Institute, the Tate Modern extension and Crossrail, but I rejected that advice, because I have always believed it is to our nation’s great advantage that we have one of the world’s great capitals. Now we are working with the Mayor on what this city will need in the future, with projects such as Crossrail 2 and the exciting development of the Olympic village.

What really drives this Government is building up other parts of the United Kingdom as a balance to London’s strength. For Scotland, we are now delivering, as promised, major devolution of tax and welfare powers. Instead of complaining endlessly about process in Westminster, the SNP Scottish Government will soon have to answer the question, “You’ve got the powers, when are you going to use them?” In Wales, we are honouring our commitments to a funding floor and to more devolution there, and investing in important new infrastructure such as the M4 and the Great Western line. In Northern Ireland, we are working with all parties to deliver the Stormont House agreement and sustainable public finances there.

Devolution to the nations of the United Kingdom is well established. In my view, devolution within England has only just begun. Today, we go further in building the northern powerhouse. I can today announce that I have reached agreement with the leaders of the 10 councils of Greater Manchester to devolve further powers to that city. These include putting fire services under the control of the new Mayor, establishing a land commission in the city and further collaboration on children’s services and employment programmes.

The historic devolution that we have agreed with Greater Manchester in return for a directly elected Mayor is available to other cities that want to go down a similar path. I can also tell the House that we are now working towards deals with the Sheffield and Liverpool city regions and with Leeds, West Yorkshire and partner authorities on far-reaching devolution of power in return for the creation of directly elected Mayors. We have created Transport for the North, and I am now putting it on a statutory footing. I can announce £30 million of funding to this new body as it connects northern England together, with seamless Oyster-style ticketing across the region.

Next, with the Secretary of State for Business, Innovation and Skills, my right hon. Friend the Member for Bromsgrove (Sajid Javid), we are pushing for more powers and responsibility to be devolved to the midlands—that engine of growth. The massive £7.2 billion investment in transport in the south-west is under way, and in the first of our new county deals, we are making progress on a major plan to give Cornwall a greater say over local decisions.

Across England, we are launching a new round of enterprise zones for smaller towns. To celebrate the Queen’s 90th birthday, a new set of prestigious regius professorships will be created in universities right across the country. To give more power to counties and to our new Mayors, we are going to give them the power to set the Sunday trading hours in their areas. Let us invest across our country, let people decide and let us put the power into the northern powerhouse.

Another key to raising the productivity of our country is building more homes and creating a fairer property market. This is a Government that are unwavering in their support for home ownership. That is why we are introducing the new Help to Buy ISA this autumn, that is why we are giving housing association tenants the right to buy and that is why we will set out further planning reforms on Friday.

Today, I will set out three important changes that will address unfairnesses in our taxation of property and put the security of home ownership first. First, we will create a more level playing field between those buying a home to let and those buying a home to live in. Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income whereas homebuyers cannot, and the better off the landlord, the more tax relief they get. For the wealthiest, for every pound of mortgage interest costs they incur, they get 45p back from the taxpayer. All this has contributed to the rapid growth in buy-to-let properties, which now account for over 15% of new mortgages, something the Bank of England warned us last week could pose a risk to our financial stability.

So we will act, but we will act in a proportionate and gradual way, because I know that many hard-working people who have saved and invested in property depend on the rental income they get. We will retain mortgage interest relief on residential property, but we will now restrict it to the basic rate of income tax. To help people to adjust, we will phase in the withdrawal of the higher rate reliefs over a four-year period, and only start withdrawal in April 2017.

Secondly, the rent-a-room relief is designed to help homeowners who rent out a room in their home. It is a good scheme, particularly in a world where more and more people are renting out rooms online, but the relief has been frozen at £4,250 for 18 years. Next year, we will raise it to £7,500.

The third change fulfils a long-standing promise that I made, and one that I was unable to fulfil in coalition. The left will never understand this, but we on the Conservative Benches know that the wish to pass something on to your children is about the most basic, human and natural aspiration there is. Inheritance tax was designed to be paid by the very rich, yet today more families are pulled into the inheritance tax net than ever before, and the number is set to double over the next five years. It is not fair and we will act.

From 2017, we will phase in a new £175,000 allowance for someone’s home when they leave it to their children or grandchildren. That sits on top of the existing £325,000 threshold, which will be fixed until the end of 2020-21. Both allowances can be transferred to a spouse or partner. From today, we will make sure that those who choose to downsize do not lose any of the allowance from the property that they used to own, but we will taper the relief away for estates worth more than £2 million.

The result for families is this: they can pass up to £1 million on to their children free of inheritance tax. No more inheritance tax on family homes: aspiration supported, the tax paid only by the rich, the security of home ownership restored—promise made; promise delivered.

The cut in inheritance tax will be more than paid for by changes which we have set out to the pensions tax relief that we give to the highest earners. From next year, their annual allowance will be tapered away to a minimum of £10,000.

Our pension reforms have given huge freedom to people who have worked hard and saved hard all their lives. Many thousands of people are, with the free guidance service we offer, making use of those freedoms to access their savings instead of buying annuities. Now it is time that we looked at the other end of the age scale—at those who are starting to save for a pension. For the truth is that Britain is not saving enough, and that is something we need to fix in our economy too.

While we have taken important steps with our new single-tier pension and generous new ISA, I am open to further radical change. Pensions could be treated like ISAs: people pay in from taxed income, it is tax free when they take it out and in between it receives a top-up from the Government. That idea, and others like it, need careful and public consideration before we take any steps, so I am today publishing a Green Paper that asks questions, invites views and takes care not to prejudge the answer. Our goal is clear: we want to move from an economy built on debt to an economy built on the more secure and productive foundations of saving and long-term investment.

If Britain wants to produce more, it needs to invest more. Many small and medium-sized businesses have benefited from our enhanced annual investment allowance. The allowance was set at £100,000 when we came to office. It is higher now, but without action it will fall to just £25,000 at the end of the year. That would especially hit middle-sized companies in areas such as manufacturing and agriculture, which we want to do more to build up in Britain, so I can confirm that the annual investment allowance will not fall to £25,000, but will be set at £200,000 this year and in every single year. That is a major, permanent boost to the incentives for long-term investment by small and medium-sized firms in Britain.

The large reductions in tax on North sea oil and gas that I announced in March are going ahead, and today we broaden the types of investment that qualify for allowances. Now that we have a long-term framework for investment in renewable energy in place, we will remove the outdated climate change levy exemption for renewable electricity that has seen taxpayer money benefiting electricity generation abroad.

We cut corporation tax from 28% to 20% over the last Parliament—one of the biggest boosts British business has ever seen. We cannot take it lower than that while such strong incentives are created for people to self-incorporate and pay the lower rates of tax due on dividends. The dividend tax system was designed partly to offset double taxation on profits, but the system has not changed despite sharp reductions in corporation tax. Lower rates are rapidly creating opportunities for tax planning. Irreparable damage was done when a previous Chancellor abolished the payable credit and deprived pension funds of billions of pounds.

We have inherited a complex and archaic system, so I am today undertaking a major and long-overdue reform to simplify the taxation of dividends. The dividend tax credit will be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers. The rates of dividend tax will be set at 7.5%, 32.5% and 38.1%—an increase of 7.5% where dividend income exceeds £5,000. Dividends paid within pensions and ISAs will remain tax free and unaffected by these changes. Those who either pay themselves in dividends or have large shareholdings worth typically over £140,000 will pay more tax; 85% of those who receive dividends will see no change or will be better off; and over a million people will see their tax cut.

That is an important reform. It comes into operation next year, and with our personal allowance and our new personal savings allowance, it means that from April, on top of the new ISA, people will be able to receive up to £17,000 of income a year tax free. The reforms that I have announced to dividend taxation also allow us to do something more, and go further in creating a Britain that is one of the most competitive economies in the world.

There are those in this House who said we were wrong to cut corporation tax in the last Parliament, but it created millions more jobs, brought businesses back to Britain and increased much-needed investment, so I profoundly disagree with them. Now at 20% for large and small businesses alike, we have the joint lowest rate of corporation tax in the G20, so there are those who say we do not need to do more. I profoundly disagree with them too. This country cannot afford to stand still while others rush ahead. I am not prepared to see that happen.

Today, I announce that I am cutting it again. Britain’s corporation tax rate will fall to 19% in 2017 and 18% in 2020. We are giving businesses lower taxes that they can count on, so that they can grow with confidence, invest with confidence and create jobs with confidence. A new 18% rate of corporation tax—sending out loud and clear the message around the world that Britain is open for business.

If we are to build a more productive economy, and our country is to live within its means, we have to make this fundamental change: we have to move Britain from a low-wage, high-tax, high-welfare society to a higher-wage, lower-tax, lower-welfare economy. For Britain is home to 1% of the world’s population, generates 4% of the world’s income, and yet pays out 7% of the world’s welfare spending. It is not fair to the taxpayers who are paying for it, and it needs to change.

Welfare spending is not sustainable and it crowds out spending on things such as education and infrastructure that are vital to securing the real welfare of the people. We legislated for savings of over £21 billion in the last Parliament, capped benefits for out-of-work families and started to introduce universal credit. Universal credit will transform the lives of those trapped in welfare dependency and deliver real social justice. It is the result of the Herculean efforts of my right hon. Friend the Secretary of State for Work and Pensions.

However, to live within our means as a country and better protect spending on public services, we need to find at least a further £12 billion of welfare savings. Let me set out the principles that we will follow and how they will be applied. First, the welfare system should always support the elderly, the vulnerable and disabled people. We will honour the commitments that we made to uprate the state pension by the triple lock and protect the other pensioner benefits. The BBC has agreed to take on responsibility for funding free TV licences for the over-75s. In return, we are able to give our valued public broadcaster a sustainable income for the long term.

In the last Parliament, we increased payments to the most disabled people, and we will not tax or means-test disability benefits. We will increase funding for domestic abuse victims and women’s refuge centres. We are also going to use the remaining funds available in our Equitable Life payment scheme, as it closes, to double the support that we give to those policyholders on pension credit who need this extra help most.

The second principle we will apply is that those who can work will be expected to look for work and take it when it is offered. The best route out of poverty is work. Our economic plan has created a record number of jobs, and now a third of a million fewer children are being brought up in workless families.

It is not acceptable that in an economy moving towards full employment, some young people leave school and go straight on to a life on benefits, so for those aged 18 to 21 we are introducing a new youth obligation that says that they must either earn or learn. We are also abolishing the automatic entitlement to housing benefit for 18 to 21-year-olds. Exceptions will be made for vulnerable people and other hard cases, but young people in the benefits system should face the same choices as other young people who go out to work and cannot yet afford to leave home.

To make sure that work pays for parents, I confirm that from September 2017 all working parents of three and four year-olds will receive free childcare of up to 30 hours a week. Once again: a promise made; a promise delivered. As a result, we now expect parents—including lone parents—with a youngest child aged three to look for work if they want to claim universal credit. That is all part of our progressive goal of securing full employment in Britain.

We also want to increase employment among those who have health challenges but are capable of taking steps back to work. The employment and support allowance, introduced by the last Labour Government, was supposed to end some of the perverse incentives in the old incapacity benefit, but instead it has introduced new ones. One of those is that those who are placed in the work-related activity group receive more money a week than those on jobseeker’s allowance, but get nothing like the help to find suitable employment. The number of JSA claimants has fallen by 700,000 since 2010, while the number of incapacity benefits claimants has fallen by just 90,000. That is despite 61% of claimants on the ESA WRAG benefit saying that they want to work. Therefore, for future claimants only, we will align the ESA WRAG rate with the rate of jobseeker’s allowance. No current claimants will be affected by that change, and we will provide new funding for additional support to help claimants return to work.

The third principle that we apply to welfare is this: the whole working-age benefit system has to be put on a more sustainable footing. In 1980, working-age welfare accounted for 8% of all public spending. Today it is 13%. The original tax credit system, introduced by the last Labour Government, cost £1.1 billion in its first year. This year, that cost has reached £30 billion. We in Britain spend more on family benefits than Germany, France or Sweden—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Both sides of the House have been very well behaved so far, so let us not spoil it as we get towards the end. I want the same dignity to be given to other speakers.

[Mr Osborne]

We in Britain spend more on family benefits than Germany, France or Sweden. It is, in the words of the right hon. Member for Birkenhead (Frank Field), the new Chair of the Work and Pensions Committee, simply “not sustainable”. As Alistair Darling has said, the sheer scale of tax credits is

“subsidising lower wages in a way that was never intended.”

Those who oppose any savings to tax credits will have to explain how on earth they propose to eliminate the deficit, let alone run a surplus and pay down debt.

We will take the following steps to put working-age benefits on a more financially sustainable footing. Since the crash, average earnings have risen by 11%, but most benefits have risen by 21%. To correct that, we will legislate to freeze working-age benefits for four years. That will include tax credits and local housing allowance, and it means that earnings growth will catch up and overtake the growth in benefits. Statutory payments such as maternity pay and the disability benefits—personal independence payment, disability living allowance and employment and support allowance group—will be excluded from the freeze.

We are also going to end the ratchet of ever higher housing benefit chasing up ever higher rents in the social housing sector. Those rents have increased by a staggering 20% since 2010. Rents paid in the social housing sector will not be frozen, but reduced by 1% a year for the next four years. That will be a welcome cut in rent for those tenants who pay it, and I am confident that housing associations and other landlords in the social sector will be able to play their part and deliver the efficiency savings needed.

We also need to focus tax credits and universal credit on those on lower incomes, if we are to keep the whole system affordable and support those most in need. From next year, we will reduce the level of earnings at which a household’s tax credits and universal credit start to be withdrawn. The income threshold in tax credits will be reduced from £6,420 to £3,850. Universal credit work allowances will be similarly reduced, and will no longer be awarded to non-disabled claimants without children. The rate at which a household’s tax credit award is reduced as it earns more will be increased by raising the taper rate to 48%. The income rise disregard will be reduced from £5,000 to £2,500—the same level at which it was originally set in 2003. Taken all together, the freeze in working-age benefits, the down-rating of social rents, and the focus of tax credits and universal credit on the lowest income households will reduce the welfare bill by £9 billion a year by 2019-20.

The fourth principle that we will apply to our welfare reform is this: the benefits system should not support lifestyles and rents that are not available to the taxpayers who pay for that system—[Interruption.]

[Mr Deputy Speaker]

Order. This House will come to order. It may not be important to some Members, but it is to the rest of us and our constituents. I want to hear what the Chancellor says because it affects all the people we represent.

[Mr Osborne]

The benefits system should not support lifestyles and rents that are not available to the taxpayers who pay for that system—[Interruption.]

[Mr Deputy Speaker]

Order. Mr Gwynne, your constituents and mine need to hear this.

[Mr Osborne]

We have already introduced a cap on the total amount of benefits that any out-of-work family can receive at £26,000. When we introduced that, it was opposed by Labour Members who said that it would drive tens of thousands of people out of their homes. Instead it encouraged tens of thousands into work. We will now go further, and reduce the benefits cap from £26,000 to £23,000 in London, and to £20,000 in the rest of the country. We will also require those on higher incomes living in social housing to pay rents at the market rate. It is not fair that families earning over £40,000 in London, or £30,000 elsewhere, should have their rents subsidised by other working people. We will turn support for mortgage interest payments from a benefit to a loan.

Another decision that most families make is how many children they have, conscious that each extra child costs the family more. In the current tax credit system, each extra child brings an additional payment of £2,780 a year. It is important to support families, but it is also important to be fair to the many working families who do not see their budgets rise by anything like that when they have more children. This is the balance that we will strike: in future we will limit the support provided through tax credits and universal credit to two children. Families who have a third or subsequent child after April 2017 will not receive additional tax credit or UC support for that child. Support provided to families who make a new claim for universal credit—[Interruption.]

[Mr Deputy Speaker]

Order. We seem to have a little problem with the gang of three on the Opposition Benches. I believe that we need to hear the Chancellor. This measure will affect my constituents and yours. I want to listen—I think it important that we all listen.

[Mr Osborne]

Families who have a third or subsequent child after April 2017 will not receive additional tax credit or UC support for that child. Support provided to families who make a new claim to universal credit after that date will also be limited to two children, and we will make similar changes to housing benefit. There will be provisions for exceptional cases, including multiple births. In addition, those starting a family after April 2017 will no longer be eligible for the family element in tax credits, nor will new births and new claims be eligible for the first child premium in universal credit. We will make similar changes to housing benefit by removing the family premium for children born or claims made after April 2016. That approach means that no family sees a cash loss and, as promised, child benefit will be maintained. These changes to tax credits are not easy but they are fair, and they return tax credit spending to the level it was in 2007-08 in real terms.

When we came to office in 2010 this country had reached the point where a benefit that was intended to support lower income households was instead available to nine out of 10 families in this country. Now, our properly focused reformed tax credit system will provide support to five out of 10 families; a much more sustainable balance in our welfare system. Taken together, all the welfare reforms I have announced will save £12 billion by 2019-20 and will be legislated for in the year ahead, starting in the welfare reform and work Bill which will be published tomorrow.

We are moving Britain from a high welfare, high tax economy to a lower welfare, lower tax society. The best way to support working people is to let them keep more of the money they earn. We promised the British people at the election that we would introduce a tax lock to prohibit any increase in the main rates of income tax, national insurance and VAT for the next five years. We will not only keep that promise, but legislate for it in the coming weeks. Our priority is not to raise taxes on working people; it is to cut their taxes.

In the previous Parliament, we raised the tax-free personal allowance from the £6,500 left by the previous Labour Government to £10,600, taking almost 4 million of the lowest paid out of tax altogether. When we went to the British people this May, we said we would go much further. Our two commitments were these: we would raise the tax free personal allowance to £12,500, so that no one working 30 hours a week on the national minimum wage pays tax; and we would raise the threshold at which people pay the higher 40p rate of tax to £50,000. These were our priorities at the election and they are the priorities in this Budget, for we on this side deliver what we promise.

The rates of income tax in the Budget remain unchanged, but the thresholds do not. Today, I am taking the first major step towards delivering our promise: I am raising the tax-free personal allowance to £11,000 next year. That is £11,000 one can earn before paying any income tax at all, boosting wages by over £900 in total and a down payment on our goal of reaching £12,500. We will now legislate, so that after that the personal allowance will always rise in line with the minimum wage and we never ask the lowest paid in our society to pay income tax.

The higher rate threshold currently stands at £42,385. I am today raising it to £43,000 from next year. It marks a strong start to our commitment to raise the threshold to £50,000 and it will lift 130,000 people out of the higher rate of income tax altogether. A personal allowance of £11,000 and a higher rate threshold of £43,000: 29 million people paying less tax; a down payment for a country on the up.

I began this Budget statement by saying that I put security first. I have set out the steps we will take to deliver economic security for a country that lives within its means and a welfare system we can afford, but there is also the financial security of families and the national security of our country. I turn to that now.

The Prime Minister and I are not prepared to see the threats we face to both our country and our values go unchallenged. Britain has always been resolute in defence of liberty and the promotion of stability around the world. With this Government, it will always remain so. So today I commit additional resources to the defence and security of the realm. We recognise that in the modern world, the threats we face do not distinguish between different Whitehall budgets and nor should we. I will guarantee a real increase in the Defence budget every year and, on top of that, create a joint security fund of £1.5 billion a year by the end of the Parliament. Defence and intelligence services will have to demonstrate they are delivering real efficiency. The strategic defence and security review will allocate the money in the most effective way. I am also protecting our overall counter-terrorism effort, and I reaffirm our international aid budget that saves lives and supports our values around the world.

I said that this was a Budget that delivered security to the people of Britain and I said we had to choose our priorities. Well, today, this Government makes this choice: committing to our armed forces who fight to keep us free; committing to the intelligence agencies who keep us safe; committing to the values we hold dear and defend around the world; and committing today to meet the NATO pledge to spend 2% of our national income on defence, not just this year but every year of this decade. We will ensure that this commitment is properly measured, because we know that while those commitments do not come cheap the alternatives are far more costly.

Let me turn to the final measure of the Budget, which speaks to the values of this Government. We have been clear that we want Britain to move from a low wage, high tax, high welfare economy to a higher wage, lower tax, lower welfare society. I have set out my plans to move us to lower welfare and lower taxes. That leaves us with the challenge of higher wages. It cannot be right that we go on asking taxpayers to subsidise, through the tax credit system, the businesses who pay the lowest wages. Subsidised low pay contributes to our productivity problem and Conservatives are against unfair subsidies wherever we find them.

In the past five years, we have taken the tough choices to drive down our borrowing, to make our business taxes competitive and to reform welfare. It is because we have taken these difficult decisions, and overcome the opposition to them, that Britain is able to afford a pay rise. Let me be clear: Britain deserves a pay rise and Britain is getting a pay rise. I am today introducing a new national living wage. We will set it to reach £9 an hour by 2020. The new national living wage will be compulsory. Working people aged 25 and over will receive it. It will start next April at the rate of £7.20. The Low Pay Commission will recommend future rises that achieve the Government’s objective of reaching 60% of median earnings by 2020. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Mr Buckland, you should know better. Don’t get carried away—there’s more to come! We’ve not quite finished yet.

--- Later in debate ---

[Mr Osborne]

Mr Deputy Speaker, let me repeat myself, because I do not think the Opposition heard it. Britain deserves a pay rise and Britain is getting a pay rise. I am today introducing a new national living wage. The Low Pay Commission will recommend future rises that achieve the Government’s objective of reaching 60% of median earnings by 2020. That is the minimum level of pay recommended in the report to the Resolution Foundation by Sir George Bain, the man the last Labour Government appointed as the first chair of the Low Pay Commission.

Let me address the impact on business and employment. The Office for Budget Responsibility today says that the new national living wage will have, in their words, only a “fractional” effect on jobs. The OBR has assessed the economic conditions of the country and all the policies in the Budget. It says that by 2020 there will be 60,000 fewer jobs as a result of the national living wage, but almost 1 million more jobs in total. It also estimates that the cost to business will amount to just 1% of corporate profits. To offset that, I have cut corporation tax to 18%. To help small firms, I will go further now and cut their national insurance contributions. From 2016, our new employment allowance will now be increased by 50% to £3,000. That means a firm will be able to employ four people full time on the national living wage and pay no national insurance at all.

Let me be clear on what this means for the low paid in our country: two and a half million people will get a direct pay rise. Those currently on the minimum wage will see their pay rise by over a third this Parliament, a cash increase for a full-time worker of over £5,000. In total, it is expected that 6 million people will see their pay increase as a consequence. Taken together with all the welfare savings and the tax cuts in this Budget, it means that a typical family, where someone is working full time on the minimum wage, will be better off.

This is the first Conservative Budget for 18 years. It was the Conservatives who first protected working people in the mills. It was the Conservatives who took great steps towards state education. It was the Conservatives who introduced equal votes for women. It was the Conservatives who gave working people the right to buy. So, of course, it is now the Conservatives who are transforming welfare and introducing the national living wage. This is the party for the working people of Britain.

The Budget today puts security first: the economic security of a country that lives within its means; the financial security of lower taxes and a new national living wage; the national security of a Britain that defends itself and its values. A plan for working people. One purpose, one policy, one nation.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I now call upon the Chancellor of the Exchequer to move the motion entitled “Amendment of the Law”. It is on this motion that the debate will take place today and on the succeeding days. The remaining motions will be put at the end of the Budget debate on 14 July.

Greece

George Osborne Excerpts

Monday 6th July 2015 Commons Chamber

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

I last updated the House on the situation in Greece a week ago. Since then the Greek Government have failed to make the International Monetary Fund payment that was due, and the Greek people expressed a decisive view in yesterday’s referendum and rejected the creditors’ terms. Greece is a proud nation and a very long-standing ally of the United Kingdom, and we respect the decision of its people, but there is considerable uncertainty about what happens next. We need to be realistic: the prospects of a happy resolution of the crisis are, sadly, diminishing.

Over the past 24 hours the Prime Minister and I have spoken to some of our counterparts, I have spoken to the head of the IMF, and just a few minutes ago I spoke to the chair of the Eurogroup. We are urging all sides to have a final go at trying to reach an agreement that defuses the crisis. The next steps are the European Central Bank discussion taking place right now, tonight’s Franco-German summit and tomorrow’s gathering of eurozone leaders. If there is no signal from those meetings that Greece and the eurozone are ready to get around the table again, we can expect the financial situation in Greece to deteriorate rapidly. For now, the British Government’s position remains the same: we will do whatever is necessary to protect the UK’s economic security at this time.

This morning, the Prime Minister chaired a meeting attended by the Governor of the Bank of England, myself and other members of the Government to review our response to the ongoing crisis. So far the financial market reaction has been relatively contained, private sector exposures are far less than three years ago, and the eurozone authorities have said that they stand ready to do whatever is necessary to ensure the financial stability of the wider euro area. But the risks are growing, so it is right that we remain vigilant and monitor the situation carefully. I am in regular contact with the Governor to oversee developments as they unfold.

We are also acting to protect British residents and holidaymakers in Greece. Last week, I told the House that the Department for Work and Pensions and public service pension administrators had started contacting Greek residents who draw a British state pension or public sector pension from a Greek bank account. I can now confirm that the DWP has spoken to 2,000 people, advising them on how to switch payments to non-Greek bank accounts if they wish. It has now enabled people in Greece who receive a UK state pension to set up a UK bank account if they do not already have one. International payments into Greece are still exempt from the restrictions that the Greek authorities have placed on the banking system, so I can confirm today that UK Government payments, including state pension and public service pension payments, will continue to be made in the usual way.

We are doing more to keep holidaymakers and residents informed about the developing situation. We are in regular contact with the travel industry, to understand the impact on British nationals; we have increased the number of Foreign Office staff in our embassy in Athens, to be prepared for whatever happens; and on the islands of Crete, Corfu, Rhodes and Zakynthos, where many British tourists are and where we already have a vice-consular presence, we have deployed more consular staff to support the teams there. But it is unrealistic to think that we can provide a consular presence on all the Greek islands, which is why we urge everyone travelling to Greece to look at the travel advice before they go. It is clear that British holidaymakers should take sufficient euros in cash to cover the duration of their stay, emergencies, unforeseen circumstances and any unexpected delays. Travellers should be careful and take sensible precautions against theft.

As the economic crisis in Greece persists, there are greater risks of shortages. In recent days the media have reported a shortage of medical supplies in Greece, so I reiterate the Foreign Office’s advice on its website that UK travellers take sufficient supplies, including prescription medicines, for the duration of their trip. We will continue to ensure that the travel advice is regularly updated with the latest information, and our ambassador in Athens will provide regular updates on the UK response in Greece.

Finally, we have put in place measures to support British businesses. HMRC’s time to pay arrangements are now open to help businesses that are experiencing cash-flow problems as a result of banking controls in Greece. Under the leadership of my right hon. Friend which Business Secretary, the Department for Business, Innovation and Skills has published detailed guidance to help businesses; it can be found on the Government website. Businesses that are experiencing problems with Greek contracts can call the business support helpline which will direct them to commercial lawyers with experience in the Greek market, or they can contact their Member of Parliament and we will help provide direct advice. The Minister of State for Trade and Investment met major UK companies and business groups last week to discuss the situation, and he will have further meetings this week.

This is a critical moment in the economic crisis in Greece, and no one should be under any illusions. The situation risks going from bad to worse, and Britain will be affected the longer the Greek crisis lasts and the worse it gets. There is no easy way out, but even at the eleventh hour we urge the eurozone leaders and Greece to find a sustainable solution. Here in Britain we must redouble our efforts to put our house in order. In the Budget in two days’ time, I will set out exactly how we will do that.

--- Later in debate ---

[Mr Osborne]

I thank the hon. Gentleman for his remarks and his questions, which were sensibly put. I agree that what we want is an orderly way forward, and the risk is a disorderly financial situation in Greece. I have spoken to several of my counterparts, including, as I have just said, the head of the Eurogroup and the managing director of the IMF; the Prime Minister has spoken to the German Chancellor and others. The simple fact is that the eurozone is waiting for the Greek Government to make a new proposal. They have requested a new programme, and they are expecting to receive the details of that request at the eurozone meeting that will be held tomorrow, but we should not underestimate the importance of the Franco-German summit tonight to see what general approach the eurozone will take to this situation.

Greece is now in arrears, so the IMF cannot actually make any payments under the terms under which it has always operated. The IMF would in any case have to operate alongside the eurozone, as it has made very clear.

The UK is monitoring developments in the four branches of the Greek banks and the one subsidiary that we talked about. That subsidiary is regulated by the Prudential Regulation Authority, but the Bank of England is also keeping a close eye on those four branches.

The hon. Gentleman asked about the bank deposit regulation and the insurance we offer. It is an EU directive that sets that rate in euros. The pound has strengthened and we actually achieved a bit of flexibility in the way the directive operates by delaying the change we need to make to the end of this year, to give plenty of time for people to become aware of the change and so that they know how much of their deposits will be protected.

We are in contact with the various tour operators, which are generally well organised to deal with various situations that might occur in holiday destinations. As I said, we have taken the precaution of increasing the consular staff—not just in Athens, but on the islands where we have a consular presence.

The blunt truth is that there are two timetables at the moment, and it is not clear how they will become aligned. The first timetable is political—the meetings that need to take place, the eurozone working together to find a common position and the proposal from the Greeks. All that looks like it will take some time. At the same time, the other timetable is the situation in the financial system in Greece—that, of course, is operating at a much faster pace. The challenge for the eurozone and for Greece is to bring those two timetables together and find an orderly solution.

[Mr Andrew Tyrie (Chichester) (Con)]

I realise that the Chancellor will want to be somewhat guarded in his reply, but how far can he go towards agreeing that Greece probably cannot recover at current euro exchange rates and almost certainly will not be able to repay all its debts, so the best course now—for Greece and the eurozone—would be to encourage Greece to recreate its own currency and for the eurozone to take all the necessary steps to prevent contagion?

[Mr Osborne]

Just as when people try to tell us what currency we should adopt we do not take too kindly to it, we should respect the decision of the Greek Government and people about the currency that they want to use. Clearly the Greek Government are saying that they want to remain in the euro. The tension, which has been there all along, is between that desire to remain in the euro and the conditions of membership that the other members of the eurozone are placing on them. That is the dilemma that has not yet been resolved.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Chancellor for his statement and for early sight of it. The Scottish National party agrees with much of what he said.

Most people recognised last week that, irrespective of the outcome of the referendum, negotiations and difficult decisions would still have to be undertaken by both Greece and its creditors. The Chancellor observed last week that senior eurozone figures had said that had Greece voted yes, then negotiations would begin to try to find a satisfactory outcome. Given that Greece voted no to the troika conditions, but voted to remain part of the EU and the eurozone, will the Chancellor try to persuade his Finance Minister counterparts in the EU and colleagues in the ECB and IMF that they, too, should respect the outcome of the referendum, stay calm and return to the negotiating table to find a long-term sustainable solution to Greece’s problems? That is in all our best interests.

It is worth noting that, as the Chancellor said, the markets have barely moved since the referendum result. They, at least, clearly discounted the possibility of a no vote, even if others did not. Peripheral country 10-year bond yields, in particular in Spain and Italy, have barely moved and are at about 2.3%. The FTSE Eurofirst 300 index is off by about 1.2% as of earlier this afternoon, although bank stocks are down a little more. However, market sentiment may change and bond yields and European banking stocks in particular may yet come under further pressure. May I ask what are the contingency plans for that eventuality; not the detail—I understand the sensitivity—but perhaps the degree of liaison between the Greek central bank, the ECB and the Fed? What plans are there, in addition to what he has laid out, to support businesses that export to Greece, particularly in the light of capital controls, to ensure cash-flow problems do not damage perfectly viable businesses here?

The Greek people have voted against further austerity, which they argue—many would agree—has failed so far. The Greek Government have a clear mandate to negotiate on that basis. I very much welcome what the Chancellor said about respecting the decision of the Greek people. I hope he and his Government will continue to respect that decision. As he said, this situation risks going from bad to worse. Even if the immediate crisis passes, the risks that do exist may do so for some considerable time.

[Mr Osborne]

The hon. Gentleman is right in his assessment of the current state of the markets. There has been a muted reaction, although Greek bond spreads have increased. I think that is in part because eurozone leaders and Finance Ministers have acted with some restraint post the result. Some of the language we heard on all sides before the referendum has been toned down, which is very sensible. I think people are now looking at the crucial meetings that will take place tonight and tomorrow to see whether they will get around the table and try one final time to reach a way forward.

On the hon. Gentleman’s specific point about export businesses, we are in contact with the various business representative bodies. We have the helpline available and HMRC is able to help with cash-flow problems. I repeat the point I made earlier: if Members of Parliament have specific cases, they should bring them to us and we will make sure that the businesses in their constituencies get specific advice. The hon. Gentleman can have my assurance that we remain in regular contact with the European authorities. The Governor of the Bank of England remains in very close contact with the head of the European Central Bank. We are prepared for what happens. I note again that there is a very fast timetable happening in the financial system in Greece. We have to make sure that the political timetable keeps pace with it.

[Several hon. Members]

rose—

[Mr Kenneth Clarke (Rushcliffe) (Con)]

I am glad to say I was, Mr Speaker. I was not going to ask my right hon. Friend about my birthday, but thank you very much for your kind remarks.

Will my right hon. Friend continue to give support to those of our sensible European allies who insist that the Greek Government cannot just expect a third bailout and a second restructuring of their debts, so that Irish, Portuguese, Spanish and other taxpayers can continue to pay for untenable levels of public expenditure, including generous early retirement schemes, bloated public sector payrolls and so on? Does he also accept that if in the next week or two the Greek Government just print a new currency, called the new drachma, it will be a quite worthless means of exchange that will probably not be used by the Greek population or by foreign suppliers of commodities? There is therefore no alternative to the Greek Government eventually agreeing structural reform, to give them a competitive economy for the future and to rejoin the European community of nations.

[Mr Osborne]

First, let me join in congratulating my right hon. and learned Friend on his birthday. The points he makes are echoed by many eurozone Governments that we speak to. There are countries in the European Union with lower GDP per capita incomes and there are Governments in the eurozone who have undertaken incredibly difficult structural reforms—he names our close neighbours in Ireland—so these points are regularly made. It is clear that there needs to be major structural reform of the Greek economy and certain conditions set on eurozone membership, and that is why the eurozone is waiting for the latest proposal from the Greek Government. Equally, we urge all parties in this, including those other eurozone Governments, to be open to new offers and to be ready to sit round the table.

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

If reports are to be believed that some of the big banks are running out of euro notes and that the Greek Government are able to print only €10 notes—any larger ones have to be imported—has Her Majesty’s Treasury made any provision to fly out euro notes to our pensioners or tourists who may be stranded and simply cannot get hold of euros?

[Mr Osborne]

What I should say, without going into too much detail, is that we have a number of contingency plans. We just hope we do not have to put them into operation.

[Sir William Cash (Stone) (Con)]

Does my right hon. Friend agree that although Greece bears responsibility, there is also the intensely political German question? Statements by the Germans recently seem increasingly self-righteous about compliance with European rules, when they themselves have been in defiance of the stability and growth pact for many years and the surplus rules. There is also the question of their over-lending to Greece, against the background of their export policy and currency manoeuvres. Does my right hon. Friend recall that in 1953, under the London debt agreement, Germany received £86 billion of debt, and does he agree that they might well be rather more generous in their attitude towards debt relief in respect of the Greek people?

[Mr Osborne]

We should understand that of course the German Government, and therefore the German people, are one of the largest creditors and therefore take a close interest in developments in Greece. Under the terms of an application for a new programme from the European stability mechanism, that requires a vote in the Bundestag, so there are clearly some key German political issues here. Where I agree with my hon. Friend is on the observation he makes about the stability and growth pact. One can argue that many of the problems that the eurozone has encountered in recent years were because of the lax interpretation of the rules, not least by France and Germany, over a decade ago. To be fair to the German Government and others, they have tried to strengthen those rules in recent years.

[Jeremy Corbyn (Islington North) (Lab)]

Does not the Chancellor think that something quite remarkable happened yesterday in Greece? Half its young people are out of work, public services are collapsing and there is desperate poverty around the country, yet the Greek people rejected the European Union’s proposals for further austerity and further cuts, seeking instead to renegotiate with the EU? When even the International Monetary Fund says that the debt is unpayable and has to be restructured over a longer period, does he not think that that should concentrate the minds of the EU and the German Government to do something urgently so that the banks in Greece can reopen, people can get back to work and the Government—the elected Government—can continue a programme of developing and expanding the economy, which is the only real way forward? Further austerity will create only deeper misery and shorter lives for a very desperate people.

[Mr Osborne]

It may surprise the hon. Gentleman to find that I agree with him on a number of points. First, I agree that we should respect the result of the referendum and the democratic decision of the Greek people. I agree that we need to see the Greek economy grow, although I would say that that requires structural reforms, as my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), the former Chancellor, said. I hope we agree, too, that there are many members of the eurozone and that this cannot be just a unilateral decision by the Greek Government and the Greek people, because other peoples and other Governments are involved, including creditor nations. The final thing we agree on is that I think the hon. Gentleman would be an excellent leader of the Labour party.

[John Redwood (Wokingham) (Con)]

The Chancellor is quite right that there are two timetables here. In his discussions with the leading players in the eurozone, was there any sense of urgency? Do they understand that unless they find a way of getting money into the Greek banking system soon, huge extra damage will be caused to the Greek economy when people will be unable to settle transactions or trade with the Greeks, and that there could be further desperate consequences to the Greek banking system? Does he agree that if the banking system goes down and cannot reopen sensibly, everybody will be far worse off and it would be a major disaster for the eurozone as well as for Greece?

[Mr Osborne]

My right hon. Friend makes the correct observation about the speed of events. To be fair, in speaking to my counterparts, I have found that they do accept the sense of urgency, but trying to get the political systems and political meetings to deliver at the right pace is, of course, difficult. That is the big challenge in the coming days. Whatever the outcome for Greece’s future membership of the euro, we want it to take place in an orderly rather than a disorderly way. Bridging between where we are today and the eventual outcome is something that the authorities in the eurozone need to work on.

[Mr David Winnick (Walsall North) (Lab)]

Has it not been made clear by the Greek Government that the vote yesterday was not about leaving Europe or even the eurozone, but about the constant humiliation the country has suffered over the years and the economic pressures piled on it? Should it not be borne in mind that we are dealing with a country that said a very firm no to Mussolini, that bravely opposed the Nazi barbarians and that opposed the military gangsters who took over the country in 1967? Is this not a people and a country that should be treated with respect, not humiliated day by day?

[Mr Osborne]

The hon. Gentleman is right to refer to the heroic history of the Greek people and the many times at which they have fought for their freedom. I would make this observation, however. If they join the eurozone, they are joining an arrangement with other member states, other Governments and some central institutions, so they cannot take a unilateral course. That is why Britain did not want to join the euro, but Greece did join it, so that requires an agreement with the other Governments and the other peoples of the eurozone, as well. What the hon. Gentleman said about the people of Greece could be said equally about the people of Spain.

[Mr Steve Baker (Wycombe) (Con)]

“ConservativeHome” and others are reporting an analysis of IMF figures according to which funds that were thought to be for the Greek bail-out are apparently being used to bail out banks in other eurozone countries. Is that true, and, if it is true, does it not put a completely different complexion on the plight of the Greek people?

[Mr Osborne]

I have not seen that analysis, but I will have a look at it and report back to my hon. Friend.

[Kate Hoey (Vauxhall) (Lab)]

I appreciate that the Chancellor of the Exchequer does not want to dictate to the Greek Government what kind of currency they should use, but will he have a word with the Prime Minister about the possibility of the two of them pointing out during their next conversation with the Greek Prime Minister that there is a bright future outside the eurozone, and suggesting that the Greeks look at the example of the United Kingdom and leave the eurozone—which, of course, we never joined?

[Mr Osborne]

My experience of the Greek Government is that they are very well versed in events here in the United Kingdom. They have certainly noticed our economic revival. I repeat, however, that it is not for us to say which currency they should use.

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

Does my right hon. Friend recall that when this country helped to persuade the rest of the world to forgive the debts of the heavily indebted poor countries, we argued first that lenders who lend too much share some of the responsibility with Governments who borrow too much, and should pay the cost, and secondly that the citizens of those countries are rarely to blame for the profligacy of their rulers, but have to suffer if they are forced to attempt to repay sums that cannot be repaid? Will he repeat those arguments to our colleagues in Europe?

[Mr Osborne]

My right hon. Friend has made a very good observation. The people who suffer when Governments get their economic policies wrong are often the poorest in the countries concerned. Sadly, we know that to our cost, given what happened in this country five or six years ago.

My right hon. Friend has also made a good point about the sustainability of debt repayments and the like. One of the big challenges that are looming is the repayment that is due to the European Central Bank. The discussion between Greece and its creditors has always been about ensuring that Greece pays what it owes but pays in a way that it can afford, and ensuring that it can grow its economy and undertake the structural reforms that are necessary to sustain its repayments. Indeed, that is an element of the discussion that is taking place now.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

In 1934, following the great depression, most of Europe’s Governments had a significant amount of their liabilities written off for good. In the case of the United Kingdom, that was about 25% of its debt. We have already heard about the London debt agreement of 1953 in relation to Germany. Is it not the case that, as The Daily Telegraph reported in February, debt write-offs are not unusual at times of crisis, and does that not indicate that crippling austerity is not the only way forward for Greece?

[Mr Osborne]

Debt sustainability is clearly one of the big issues for the Greek Government, but—and this, I believe, was also true of the discussions that took place in the 1950s—there must also be some agreement on the creditors’ part that economic reforms are in place that will allow the country to grow and thrive in the future. At present, the two sides cannot agree. The Greeks want the restructuring, while the eurozone wants more conditionality, and more evidence of the structural reforms that it believes will help the Greek economy to grow. What we are doing is urging the two sides to try to reach some kind of agreement.

[Crispin Blunt (Reigate) (Con)]

My right hon. Friend is urging a sustainable solution on our eurozone partners. Is he really saying that if he were a eurozone Finance Minister, he would fancy the task of going to his Parliament to seek authority to throw more good money after bad at the intransigent and unrealistic Government who so unhappily appear to represent the view of the Greek people?

[Mr Osborne]

I do not want to speculate on how this country would behave if it were a member of the eurozone. Thankfully, that is one of the pressures that our Government do not have to bear. However, this does remind everyone that a country that joins in a currency with other nation states and creates collective institutions will find itself bound by those rules, and will find that some of its unilateral, albeit democratically endorsed, decisions are not necessarily accepted by everyone else.

[Helen Goodman (Bishop Auckland) (Lab)]

Obviously the Chancellor is focused on the short term, but under any scenario one of the issues the Greek Government must get to grips with is improving their revenue-raising. Has any thought been given to technical assistance programmes along the lines of those run for the east European countries, to increase their capacity to raise taxes more effectively?

[Mr Osborne]

The hon. Lady draws attention to the very poor record on revenue collection in Greece. It is one of the things that most frustrates its creditors and it comes up regularly in the discussions with the other eurozone Governments. There is actually some history to this: there is a tradition of non-payment—if we can put it like that—going back through Greek history, partly because of the Governments it has had in the past. To be fair to the current Government, and indeed their immediate predecessors in Greece, they have talked about trying to improve revenue collection. The British Government have offered assistance; members of the British civil service have been out on secondment and the like over recent years to try to improve revenue collection. Unfortunately, however, at the moment revenue collection has almost dried up.

[Sir Roger Gale (North Thanet) (Con)]

My right hon. Friend has many aspects of this on his mind at the moment, but those of us who seek to protect the interests of ex-pat UK citizens know that they will be hugely appreciative of the fact that he is seeking to safeguard their pension rights and exportable benefit rights, but there are others, particularly those living in Cyprus, who are also dependent on the Greek banking system, so will my right hon. Friend have a word with the Minister for Europe, sitting to his right, and make sure consular assistance is made available to all ex-pat UK citizens who might be affected by the Greek banking crisis?

[Mr Osborne]

Of course, we do keep a close eye on the situation in Cyprus. A couple of years ago we provided a lot of support to British citizens or others receiving, for example, British pensions in Cyprus when its banking system collapsed.

One of the challenges with people in Greece who receive a British pension but have a Greek bank account is that if we simply stop the money going in, in order to try to protect the payment from whatever might happen, we do not know whether that might disrupt an agreement they have, for instance, with money coming out of their bank account to pay for rent, or for other things, and of course the Greek Government have not so far put restrictions on pensioners in Greece. We monitor this very carefully, and we have contacted a couple of thousand of the people affected to see if they want to switch bank account and offer them a British bank account facility if they want one. We keep this under daily review.

[George Kerevan (East Lothian) (SNP)]

In the light of both the unprecedented and potentially disastrous public attacks by Christine Lagarde against the Greek Government and the referendum result, will the right hon. Gentleman now urge the International Monetary Fund to make available to Greece the some £1.6 billion in profits the fund has made from charging the Greek Government for their emergency loans?

[Mr Osborne]

I do not accept that characterisation of the managing director; I think she has played a very important and constructive role in this crisis. The IMF exists to lend to countries that are by definition in some distress, but it, too, has rules, which have been established for many decades. One of them is that countries in arrears to the IMF cannot receive payments, and unfortunately last week Greece went into arrears.

[Wendy Morton (Aldridge-Brownhills) (Con)]

Given this uncertainty and the popularity of Greece and the Greek islands as we approach the main holiday season of the year, what reassurances can the Chancellor give me that I can pass on to my constituents that we will continue to give updated advice and information?

[Mr Osborne]

All the reports we have back from our consular staff and the various travel companies is that people are enjoying their holidays in Greece, are not seeing the disruptions, and are able to use their credit cards and the like, so we have not changed our travel advice to say people should not travel to Greece. What we have said, however, is that people should anticipate unforeseen—or, indeed, potentially foreseen—circumstances and make sure they take more cash with them than they might otherwise have done, so they are covered for different eventualities. If they do that, they can enjoy their holiday, and make a contribution to the Greek economy, which is very important, but they should take cash with them.

[Peter Grant (Glenrothes) (SNP)]

Does the Chancellor see the irony in the fact that the people of Greece are being hounded by financial institutions that would not exist had they not been bailed out at taxpayer expense to a sum far, far greater than the one the Greek Government now owe? Will he not accept that that is perhaps a sign that the Governments of Europe have to balance up their act and understand that Europe’s first priority should be to meet the needs of Europe’s citizens, not satisfy the greed of Europe’s bankers?

[Mr Osborne]

In the end, it is impossible for any country to defy the financial markets. That is something this country has learned to its cost in the past. What we want to see in Greece is investment flowing into the country, the banks reopening and the economy growing. That is why we look forward to the proposals that the Greek Prime Minister says he will bring to the eurozone summit tomorrow.

[Mr Christopher Chope (Christchurch) (Con)]

Does my right hon. Friend agree that it would not be anything for the Greek people to be ashamed of if they decided that they were best off getting out of the straitjacket of the eurozone and were able to wrest away from the controls of the European vulture funds?

[Mr Osborne]

I will not exactly use the language that my hon. Friend uses, but I think he would absolutely agree that we need to respect the rights of the Greek people to make their own decisions on their future. They have clearly expressed their view in the referendum, but of course they are part of a currency where other populations care about the arrangements with Greece. Governments in Ireland, Spain and the like ask, “We have undertaken a lot of these reforms and measures, so why are the same things not demanded of the Greeks?” That is the challenge that the eurozone faces. Where my hon. Friend and I agree is that we are well out of it and are happy with our pound sterling.

[Keith Vaz (Leicester East) (Lab)]

Since 1 January, 66,000 people have illegally crossed the border between Greece and Turkey. That is 360 a day, many of whom travel through the island of Kos to get to the Greek mainland. Greece requires urgent help to police not only its border, but the border of the EU. If we do not help Greece on this particular issue, the migrants will fall into the hands of people traffickers and end up in Calais, where the issue will become a problem for Britain and France. What can we do to help the Greeks with this issue?

[Mr Osborne]

The right hon. Gentleman is right to draw our attention to the serious migrant issues in Greece. I think we all remember seeing the television images a few weeks ago of the boat crashing into the rocks off the beaches in Greece. I know that the Home Secretary and other European Interior Ministers have spoken to the Greek Government about the direct assistance we can provide to help them police their borders and deal with what is, of course, a common challenge.

[Christopher Pincher (Tamworth) (Con)]

I am grateful for the steps the Chancellor is taking to help British businesses and to advise holidaymakers, but he will know that many more British holidaymakers will shortly be making the journey to Greece. Has he any indication of any tour operator that is unduly exposed to the Greek market and therefore at heightened risk of failure? Will he, along with his colleagues on the Front Bench, continue to monitor the situation?

[Mr Osborne]

We keep in touch with all the tour operators. Most of them have very big operations in Greece, but they are satisfied with the arrangements and the support we are providing. As I say, these holidays are going ahead. People are not seeing any great disruption and are making a contribution to the Greek economy. We want to continue to provide good travel advice. We will change the travel advice if we feel we need to, but the travel advice at the moment is not, “Do not travel to Greece”; it is just, “Make sure you are prepared.”

[Richard Burgon (Leeds East) (Lab)]

Does the Chancellor agree with the Greek Prime Minister, who stated after the referendum result was announced last night that the IMF’s recent report on its sustainability confirms the Greek position that debt restructuring is necessary to reach a final sustainable solution to end the crisis both for Greece and for Europe? Does he not agree that a European conference on debt cancellation is a necessary part of that solution?

[Mr Osborne]

The sustainability of Greece’s debt payments is clearly a big issue. That is why it failed to meet the IMF payment last week and faces such a big challenge with the ECB repayment later this month. That is one of the challenges, but alongside it—and the IMF draws this to our attention as well—there must be some indication that the Greek Government can undertake the kind of reforms that will modernise the Greek economy, make sure it is a success and ensure a stream of tax revenues in the future. No one is pretending that it is easy, but that is the substance of the negotiation.

[Jeremy Quin (Horsham) (Con)]

I am thinking of what has been going on recently in China, in particular, and know that my right hon. Friend will be well aware that there are always dangers to the global economy. He has always been very alert to the deficiencies of governance within the eurozone. Does he believe that that governance has reformed sufficiently to prevent another similar crisis in the future in another eurozone state?

[Mr Osborne]

My hon. Friend is right to draw the House’s attention to some of the economic issues in China, but if we can stay in the western hemisphere for the purposes of this statement, the eurozone is a much better place than it was in 2012 to deal with any contagion from the Greek crisis. That is reflected in the fact that the bond spreads for the peripheral countries have not gone out today, because the ECB is prepared to do, in its words, “whatever it takes” in its outright monetary transactions policy. We have the European stability mechanism, which is, in other words, a sort of central bail-out fund. We have more of the machinery in place than we did in 2012, which is why we are not seeing quite as much contagion. I would make a general observation I have made before, however. I do not think people should underestimate the medium to long-term impact of a country leaving the euro and showing that it is possible to exit that currency.

[Derek Twigg (Halton) (Lab)]

The Chancellor said in his statement last week and has said since that we must hope for the best and prepare for the worst. I asked him last week what the worst was. May I ask again what the worst will be for the UK?

[Mr Osborne]

The worst for the UK and the whole of Europe will be a completely disorderly situation over the next few weeks that has an impact on Europe’s financial system. As Britain is one of the most open economies in the world, that will impact on us. We saw the impact of the problems in the eurozone in 2012 and how they spilled over into the UK. That is the challenge of any financial crisis and it is a challenge for the UK as an open economy. That is why we are urging those on all sides to try to resolve the situation.

[Sir Edward Garnier (Harborough) (Con)]

The United Kingdom Exchequer will be exposed whether Greece stays in or leaves the euro. Will my right hon. Friend publish, if he can, the assumptions on which his assessment of those contingencies can be made?

[Mr Osborne]

Of course, we have a very small direct exposure as our banking system has greatly reduced its Greek liabilities. We have four pretty small Greek branches and one subsidiary. We are not directly exposed to loss and although we are a member of the IMF, no country has ever lost money supporting the IMF. Of course, people ask what might happen to Greece should it leave the euro, but I think we can leave that for another day.

[Barry Gardiner (Brent North) (Lab)]

Will the Chancellor remind the House of the amount of money that this country made available to the IMF as part of its assistance package to Greece? He has reasserted today that no country has ever lost money by lending it to the IMF, but of course the IMF has said that it believes that a serious restructuring is required for Greece to get through its current difficulties. That implies that the moneys owed to the IMF will not be repaid.

[Mr Osborne]

The IMF has existed since it was created out of the Bretton Woods conference and, by definition, it exists to support countries that are in very real financial distress. That is its business: lending to countries that are having real problems managing their debts. It is important to say again, however, that Britain and other members of the world community that support the IMF have never lost money in this way, because the IMF holds contingency reserves. It is also the preferred creditor. Frankly, I do not think that the prospect of us losing money through the IMF is that strong.

[Suella Fernandes (Fareham) (Con)]

Thankfully, the global stock markets proved resilient despite yesterday’s result. However, bank shares were among some of the biggest fallers, with Barclays down by 1.7%. What is my right hon. Friend’s advice to banks that fear that the crisis could increase losses from bad loans and drive up borrowing costs for Governments?

--- Later in debate ---

[Mr Osborne]

All British banks have greatly reduced their exposure to Greece over the past few years. Continental banks have also reduced that exposure, so British banks are less indirectly exposed. Collectively, less than 1% of the core tier capital of the British banking system is exposed to Greece. We are therefore much better prepared than we might have been a few years ago. Also, our own economy is stronger and we are not in such a vulnerable position in regard to our public finances as a result of the difficult decisions we have taken. We are in a much stronger position to deal with whatever comes, but we are an open economy, and a financial crisis in Europe is not something that will just pass Britain by.

[Mr Clive Betts (Sheffield South East) (Lab)]

The Chancellor has rightly said that a number of difficult issues need to be resolved if agreement is to be reached between Greece and its creditors. Last week, the IMF said that even if all the other issues were resolved, any agreement would be unsustainable unless debt relief formed part of the package. Do the Government agree with the IMF on that key point?

[Mr Osborne]

We agree that a key issue is Greece’s ability to make its debt repayments. That is self-evidently the case because it failed to make a debt repayment to the IMF last week, and it also has to make a big debt repayment to the European Central Bank. I do not think it is right simply to pick out one piece of the IMF’s advice. It has also stated strongly that the Greek economy needs major structural reform, for example. We have to look at the IMF’s advice in the round, which is why it is such a valuable institution.

[Craig Mackinlay (South Thanet) (Con)]

I cannot help wondering whether the resignation of the Greek Finance Minister, Mr Varoufakis, might result in an opening for the former Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Liam Byrne). Does my right hon. Friend acknowledge the importance of a strong economy and a plan to eliminate the deficit? Put in simple terms, does he agree that we need to live within our means?

[Mr Osborne]

My hon. Friend is right to say that countries need to live within their means. As a Government, we have addressed that matter over the past five years, and I shall address it again in a couple of days’ time in the Budget. Mr Varoufakis has now resigned, and I shall be moving on to yet another Greek Finance Minister, but I doubt that the next one will have quite the dress style of the one we have just lost.

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

Could the Chancellor be more specific about the risks to the UK’s economic security and, in particular, about the measures that he is going to introduce to mitigate those risks?

[Mr Osborne]

The risks stem from the fact that we are the world’s largest financial centre. We are also the global centre for the trading of the euro. We are a very open economy; on most measures, we are the most open and interconnected of all the world’s advanced economies. We are therefore affected by financial conditions in Europe. We saw that a few years ago, but we are in a much stronger place than we have been in the past because we have been paying down our very large deficit, because we have been strengthening our economy, because we have been recapitalising our banking system and making sure our banks are stronger, and because we have a much better system of regulation, in which the Bank of England is in charge of regulating the banks. Those are all steps that we have taken. I do not think anyone will be particularly surprised to hear that when we assemble in a couple of days to hear the Budget, we will hear the further measures needed to reduce that budget deficit and ensure that we fix the roof while the sun is shining.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

Such external shocks do focus the mind. May I bring the Chancellor back closer to home? He has tough decisions to make on Wednesday. Has he had any representations from the Opposition Benches about where those cost savings should come, and support for the long-term economic plan?

[Graham Stringer (Blackley and Broughton) (Lab)]

The Chancellor, in a moderate and balanced statement, said that he respects the Greek decision. That is in sharp contrast to some of the eurocrats and Ministers from other eurozone countries, who have made bullying and intemperate statements to the Greek Government. Will the Chancellor tell the House what steps he and the Prime Minister have taken to stop the same people trying to interfere in our referendum about our future in the European Union?

[Mr Osborne]

As I think we saw in the past week, some of those intemperate statements might have had the exact opposite effect to the one that they were intended to have, which reminds us not to interfere in other people’s democracies.

[Stephen Hammond (Wimbledon) (Con)]

Although the bond yields in Spain, Italy and Portugal rose only 12 basis points this morning, and despite what the eurozone said about whatever measures are necessary, the spread over German bonds suggests that there is still a real risk of contagion. Can the Chancellor confirm that thanks to his action, any measures taken by the eurozone will have a very limited impact on the UK financial system and limited cost for the UK taxpayer?

[Mr Osborne]

My hon. Friend is right. We have reduced our exposure, as I said, to the Greek economy and, absolutely crucially, the Prime Minister made sure we were out of the bail-out funds for Greece that existed when we came to office. With hindsight, that looks like one of the most important decisions we took.

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

The form of any contagion is not yet known, but surely one of the dangers is capital flight from the poorer southern eurozone economies to the richer northern economies. That would not just be a disaster for Greece, Italy, Portugal and Spain, but it would have ramifications for the wider European Union, which are political, as the Chancellor has intimated. Given that, what discussions are he and his officials having with European Finance Ministers to make sure that the European single market is not undermined?

[Mr Osborne]

The hon. Gentleman is right that capital flies from countries in distress. That is why the Greek Government have had to impose capital controls. We see German bund spreads coming down today. That is a consequence of an open and free market and, as I said in reply to an earlier question, it is difficult to defy that market, as Greece is seeing. More broadly, we want to make sure that the eurozone finds some sustainable way forward so that we avoid these tensions, which spill out into the political system.

[Several hon. Members]

rose—

[Philip Davies (Shipley) (Con)]

Is not the genesis of the problem that the EU allowed Greece to fiddle the figures in order to join the euro in the first place? Is not this blinkered pursuit of a political project of ever-closer union, rather than thinking through the economic consequences, the reason why we need to leave the European Union?

[Mr Osborne]

I know my hon. Friend has consistently held that view since he put it in his maiden speech, as I remember from listening to him many years ago. He identifies two challenges. One, fiddling the figures, we have addressed in this country by creating the Office for Budget Responsibility. When it comes to ever-closer union, that is precisely one of the issues that we are seeking to address in the renegotiation that we are conducting with the European Union.

[Bill Esterson (Sefton Central) (Lab)]

The Chancellor has been asked a number of times about the worst-case scenario for this country as a result of the crisis. Can he spell out what that would look like for the people of this country?

[Mr Osborne]

As I have said, Britain is not immune to the problems in the European economy. Some 50% of our exports go to the European Union, even if only a very small proportion of that goes to Greece, and we are a very large financial centre, so there would be an impact on our economy if the Greek crisis continued to deteriorate. That is why it is absolutely in our interests that there is a solution.

[Julian Knight (Solihull) (Con)]

On a humanitarian point, considering that some international drug companies are currently holding off shipping to Greece as a result of the crisis, are there any early contingency plans in place, or discussions in the UK and the EU, for moving in medical aid should our friends suffer a social and economic collapse, the likes of which were seen when Argentina defaulted in 2000?

[Mr Osborne]

My hon. Friend is right to remind us that, although we are talking about a financial crisis, there is real human suffering in Greece, because the banking system has effectively shut down for many Greek citizens and businesses. There are reports of a shortage of medicines, which is why I drew attention in my statement to the Foreign Office’s advice—I was reiterating advice that has been in place—to take adequate supplies of prescription medicines, in particular. On his specific point, we have been talking with the British pharmaceutical companies, which have continued to supply the Greek market, and of course we stay in touch with them regularly.

[Rachael Maskell (York Central) (Lab/Co-op)]

Infant mortality has doubled and there has been a sharp rise in HIV, TB, suicide and other physical and mental health conditions in Greece. Therefore, I want to see that we ensure that we make provision for emergency medical and humanitarian support in these vital discussions this week.

[Mr Osborne]

The hon. Lady is perfectly right to draw to the House’s attention the very difficult situation that Greek families can find themselves in at the moment. That is all the more reason why we need to find a resolution. As I have said, the British pharmaceutical companies, which are important suppliers to the Greek medical system, are continuing to make those supplies, despite the imposition of capital controls. The whole question of what should happen if Greece falls out of the eurozone is something that I think we should return to if that eventually arises. Greece is one of this country’s oldest allies and of course we will always stand by it.

[Robert Jenrick (Newark) (Con)]

The Chancellor has said that we must not underestimate the impact of these events on the UK economy. Whatever happens, the weak and stagnating economies of southern Europe, in particular, will continue to deteriorate. Looking towards the Budget and the months ahead, will my right hon. Friend use all his offices to pivot the UK economy towards growing and emerging economies elsewhere in the world, particularly as he did decisively with the UK’s leading role in the Asian Infrastructure Investment Bank?

[Mr Osborne]

My hon. Friend makes a good point. British exports are too dependent on European markets and have been badly hit by weaknesses in the European economy over the past five years. That is why we have put a huge effort into trying to expand our trade and investment in fast-growing parts of the world, such as Asia. We want to be part of the new institutions there, such as the Asian Infrastructure Investment Bank. However, some southern European economies, such as Spain’s, have shown a remarkable turnaround, because they have taken difficult decisions, reformed their economies and are now reaping the benefits.

[Gareth Johnson (Dartford) (Con)]

Britain is quite rightly a good friend of Greece, but does the Chancellor agree that the situation there reminds us that in the end economic logic must prevail? Countries must live within their means, and failure to tackle debt, for example, can lead only to economic and financial disaster.

[Mr Osborne]

My hon. Friend makes a very good observation. Countries that fail to live within their means are exposed to the forces of the international bond markets and the flight of investor confidence. Five years ago, Britain had a budget deficit of over 10% of its national income. We have reduced that budget deficit, and this week we are going to take further steps to finish the job.

[Mr Peter Bone (Wellingborough) (Con)]

The Chancellor will be aware of the detailed contingency plan that the eurozone has for a Greek exit from the euro. With the markets calm, would not this be the time to implement that plan?

[Mr Osborne]

As I say, it is not for us to dictate to the Greek people or to the eurozone whether Greece should leave. I repeat: the elected Government of Greece say that they want to remain in the eurozone, so we should at least respect that intention, and we will see whether they can work with their partners to deliver it.

[David Rutley (Macclesfield) (Con)]

I welcome the steps that my right hon. Friend is taking to secure UK economic interests in the current difficult circumstances. Given that one of the challenges of the situation is the lack of a clear and orderly exit mechanism from the eurozone, are there any plans within the eurozone to address this issue after the short-term challenges facing Greece have been solved?

[Mr Osborne]

My hon. Friend makes a good observation. There is no straightforward mechanism for a country to exit the eurozone; it is not provided for in the treaties. Of course, if the eurozone wanted to propose a change to the treaties, then we would be very willing to sit down and discuss it.

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

My right hon. Friend will know that 90% of the world’s physical trade travels by sea. He may also know that Greek individuals and companies are the largest owners by tonnage in all sectors of the market. Any reduction in tonnage across the world is not only damaging to international trade but potentially highly inflationary. Has he given any consideration to this, and what discussions has he had with partners to ensure that sufficient shipping tonnage remains available for all international trade?

[Mr Osborne]

We have stayed in touch with all interested parties. Of course, the shipping industry is an incredibly important part of the Greek economy and the global economy, but we do not currently see a particular disruption to the shipping industry that we should be alarmed about.

[Tom Pursglove (Corby) (Con)]

What support are the travel operators giving the Chancellor in his efforts to disseminate information to travellers going to Greece from this country?

[Mr Osborne]

It is fair to say that the travel companies have been behaving very well and co-operating with us very closely. At any one point in the month of July, there are 150,000 British citizens on holiday in Greece. The companies are therefore used to communicating on a large scale, and they are one of our main points of contact with holidaymakers. I say again that people travelling to Greece should check out the Foreign Office travel advice.

[Alan Mak (Havant) (Con)]

While the Greek people gave a clear answer in Sunday’s referendum, there is still a huge amount of concern across Europe that is worrying to working families in this country. Can my right hon. Friend assure me and my constituents that he is taking all necessary steps to protect their economic security?

[Mr Osborne]

I can assure my hon. Friend that we will go on delivering economic security for the working people of Britain. I will come back to the House on Wednesday to deliver a Budget that does just that.

[Mr Philip Hollobone (Kettering) (Con)]

I support the comments by the right hon. Member for Leicester East (Keith Vaz), the Chair of the Home Affairs Committee. The Greek-Turkish border is already the leakiest part of the EU’s external frontier, and one of the biggest threats to this country from a complete social and financial collapse in Greece is thousands more migrants making their way through to Calais and trying to get into this country. Will we use our good offices within the EU, and outside the eurozone, to ensure that the EU provides all the necessary support to plug the gaps in the Greece-Turkey part of the EU external border?

[Mr Osborne]

My right hon. Friend the Home Secretary is working very actively on precisely this issue. My hon. Friend reminds us, at the end of this statement, that although this is of course a big issue for the eurozone, it is also an issue for the whole of Europe, including the United Kingdom. We want to see a resolution of this Greek crisis. Even at this eleventh hour, we want the eurozone and Greece to sit down and try to find a sustainable way forward.

Greece

George Osborne Excerpts

Monday 29th June 2015 Commons Chamber

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

Let me report to the House on the latest developments in the financial crisis in Greece, how they might affect British citizens, and how we will protect our economic security at this uncertain time.

The developments over the weekend have been well reported. Greece’s financial assistance programme is due to expire tomorrow. After tense negotiations last week between the Greek Government and their eurozone partners, it looked likely that a deal to extend that programme would be agreed. On Friday, however, the Greek Prime Minister suddenly announced that there would be a referendum on 5 July on the terms of the programme extension, and that he would recommend that the Greek people vote no. On Saturday, the eurozone Finance Ministers confirmed that, as a result of that unexpected move, negotiations were at an end and the programme would expire. Yesterday, the European Central Bank said that without a programme, it could not extend the emergency liquidity assistance that is the life support of the Greek banking system, and last night, clearly under pressure, the Greek Government announced that banks would not open today and that capital controls would be introduced.

There is considerable uncertainty about what happens next. Over the past 48 hours I have spoken to fellow Finance Ministers, the chair of the Eurogroup and the head of the International Monetary Fund. At lunchtime, as we have just heard, the Prime Minister chaired a meeting attended by the Governor of the Bank of England, myself, the Foreign Secretary and others to co-ordinate our response. Britain’s attitude to the developing Greek crisis is clear: we hope for the best, but we prepare for the worst.

Let me address some immediate issues that will concern people. First, our view on the overall state of the relationship between Greece and its fellow eurozone members is this: whether or not Greece should ever have joined the euro, it is now part of that single currency, and an exit will be traumatic. It was the Greek Government’s decision to hold a referendum that was the immediate trigger for the events over the weekend and the bank closures today. We should plan on the assumption that the referendum will effectively be a choice for the Greek people about whether their country now leaves the euro. That is a matter for the Greek people to decide, and we respect their democratic right to decide their country’s future. We also respect the right of the eurozone to set conditions of membership. The remorseless logic of integration is one of the reasons we did not join the euro and do not want to join in the future.

Secondly, I turn to the impact of the current events on the stability of the financial system in the United Kingdom and throughout Europe. Related to that is the position of the Greek banks here in the United Kingdom. The Greek crisis has, in one form or another, been with us for five years. It is one of the biggest external economic risks to the British economy, and the situation today shows that those risks remain. No one should underestimate the impact that a Greek exit from the euro would have on the European economy, or the knock-on effects on us. That is why I have consistently argued that the best way to protect ourselves from those risks is to put our own house in order.

Of course, markets anticipate some of the risks. Private sector exposure to Greek banks and the Greek economy is far lower than it was, say, three years ago, so the financial market reaction today has been relatively contained. Stock prices on European exchanges have fallen by between 2% and 5%, and Greek bond deals have increased by about 400 basis points to more than 14%, but bond spreads in other eurozone economies have remained broadly steady. The eurozone authorities have made clear that they stand ready to do whatever is necessary to ensure the financial stability of the euro area, and we welcome that commitment to the currency. Equally, the British Government and the Bank of England stand ready to ensure our financial stability in the United Kingdom.

The four largest Greek banks, Alpha Bank, Eurobank, National Bank of Greece and Piraeus, all have branches here. Their UK balance sheets are small: between them, their deposits total less than £225 million. Resolution and supervision of those branches is the responsibility of the Greek and EU authorities. Protection of depositors is solely the responsibly of the Greek authorities. All four branches are open today.

There is one Greek bank with a subsidiary in the UK—Alpha Bank. It is a standalone entity that is separate from its parent bank. It is small, with assets of slightly more than half a billion pounds, it is regulated by the Bank of England, and customers can be assured that their deposits are covered by the UK’s Financial Services Compensation Scheme.

Thirdly, there are 40,000 British residents in Greece, including 6,000 receiving payments from the Department for Work and Pensions and about 300 receiving public sector pension payments. The Greek Government have announced a bank holiday in Greece lasting at least until after the conclusion of the referendum on 5 July, and restrictions on withdrawals from ATMs. Withdrawals will be limited to €60 per day per account for Greek accounts. The Greek bank accounts of British residents are subject to those restrictions. Their UK bank accounts are not affected.

International payments into Greece are exempt from the restrictions that the Greek authorities have placed on the banking system. That means that UK Government payments, including state pension and public service pension payments, should be permitted, and I can confirm that those payments will continue to be made in the usual way. However, the situation remains fast-moving and uncertain, and we will keep it under constant review. I recognise that people may be concerned. I have asked the Department for Work and Pensions and public service pensions administrators to attempt to contact people who draw a British state or public sector pension from a Greek bank account. Those people will be helped to switch their payments to a non-Greek bank account if they wish.

Fourthly, there are an average of 150,000 British tourists a week in Greece in July. For the time being the Greek Government have announced that, as usual, tourists will be able to withdraw up to €600 on cards that have been issued outside Greece. However, the Finance Ministry could impose limits in the future, and the availability of ATMs that are stocked with cash may get increasingly patchy. I remind people that credit and debit cards are of course accepted only at the discretion of the business being paid.

I can confirm that as a result of the limited and potentially unreliable banking services, the Foreign Office is updating its travel advice as I speak. We recommend that travellers should take sufficient euros in cash to cover the duration of their stay, emergencies, unforeseen circumstances and unexpected delays. Obviously travellers should be careful and take sensible precautions against theft. The full advice is available on gov.uk, and travellers should check it regularly.

Finally, we are taking steps to help firms doing business with Greece. There are restrictions on the settlement of payments being transferred out of the Greek banking system. The Department for Business, Innovation and Skills is today publishing guidance for businesses that may be affected. In addition, I can announce that Her Majesty’s Revenue and Customs’ time to pay service will be available to help give breathing space to businesses experiencing cash flow difficulties as a result of events in Greece.

So let me be clear: British pensioners are being paid as normal, British businesses trading with Greece will be supported, and British holidaymakers will receive the advice and help they need in a rapidly changing situation. I want people to know that Britain is prepared.

To conclude, it is vital that the Government and people of Greece now act to resolve the current uncertainty and ensure economic and financial stability across Europe. Five years ago we came into office in the first flush of the Greek crisis. At the time Britain, too, was dangerously exposed—on the brink. Since then, with the British people, we have worked hard to repair our economy and ensure that we can deal with risks from abroad like the current one. If ever we needed a reminder of why we must continue working through our plan to deliver economic security at home, we have it today, and I will take further steps to secure our country’s future in the Budget next week.

--- Later in debate ---

[Mr Osborne]

Let me deal with the specific points that the hon. Gentleman has raised. Our advice to the many British people who are planning to go on holiday to Greece is very clear. They should continue to check the travel advice on the Government website. As I have just explained, that advice has been changed, and we are advising people to take more euros with them than they might have been expecting to take.

The hon. Gentleman makes a point about our conversations with the Greek authorities. Clearly they have tried to, in some sense, protect tourists from their capital controls, because if people have access to a foreign bank account, they can withdraw up to €600 from the ATMs. But of course one has to think through a situation where the ATMs potentially start to run out of money, particularly in certain locations. That is why we are advising people to take more cash with them but also to be aware of the safety issues involved in that.

On the question about British citizens who have deposits in Greek banks, I hope I made it clear in my statement that deposits in branches of Greek banks, and indeed, in that sense, also the host bank, are not covered by the UK’s compensation scheme, but the deposits in the subsidiary are in the UK. If people are not entirely sure what their situation is, they should check with their bank, but that has been spelled out for them. On the support for the British embassy and our consular teams in Greece, the Foreign Secretary is here, we have discussed this and the Foreign Office has put in place contingency plans to step up the support it can provide on the ground should the situation deteriorate.

On the exposure of our banking system, it is less than 1% of the common tier 1 capital of the UK banks. As I said in my statement, it is fair to say that as a country and as a banking system we have dramatically reduced our exposure to Greece, as has pretty much every other bank in Europe. In terms of how this is co-ordinated across government, the Bank of England leads on financial stability issues, the Foreign Office covers the consular issues, and the Treasury is covering the financial stability issues and working with the Department for Work and Pensions on payments, but we are meeting regularly. We had the meeting today and we also had a meeting last week, which the Governor also attended. On businesses affected, advice is available on the Department for Business, Innovation and Skills website, and, as I say, HMRC’s time to pay scheme can help with cash flow. Only 0.6% of the UK’s exports of goods and services go to Greece, so it is a small amount, but of course there could be a considerable impact on individual firms.

The IMF was created after the second world war to provide support for economies that have been struggling. We took steps in the last Parliament to increase the capital available to the IMF—I might point out that the Opposition divided the House on that issue, but it was a sensible step to take. The IMF has precautionary balances, and let us be clear that no one has ever lost money lending to the IMF and providing support to the IMF. Of course the IMF is very important in this situation, not least because of the rigour that it brings, which is one of the reasons why quite a few members of the eurozone are absolutely insistent that the IMF is around the table.

The final point I would make is this: of course we would like a peaceful—if that is the right word—or less traumatic resolution of this crisis, but things have taken a turn for the worse because of the decision to hold this referendum and because the Greek Prime Minister said he was going to recommend a no vote. I would therefore suggest that at the moment, in the next few days, the ball is largely in the Greek Government’s court. Of course if things change, there is a very big role for the eurozone to play in helping to achieve a negotiated settlement.

The observation I would make is that five years ago we were much less well prepared to deal with shocks from abroad: we had a very high budget deficit, one of the highest in the world; and our banks were not as well capitalised as they should have been. We are in a stronger position as a result of the difficult decisions we have taken over the past five years and if the hon. Gentleman is willing to support the further decisions that we are going to take in the Budget next week, I look forward to his saying so next Wednesday.

[John Redwood (Wokingham) (Con)]

The European Central Bank has lent €89 billion so far to the Greek banking system, and that money is now at risk. Will the Chancellor confirm that, thanks to our prudent approach, UK taxpayers would not make any contribution to the recapitalisation of the ECB if that money has now been lost?

[Mr Osborne]

My right hon. Friend is right to point out that in effect what has happened over the past few years is that the private exposures to Greece have been converted into eurozone public exposures and, of course, into IMF exposure. That is part of what has happened. One key decision that we took in the previous Parliament was to get the UK out of these eurozone bail-outs. The previous Government had signed us up to those bail-outs, but the Prime Minister got us out of them and, as a result, dramatically reduced the UK’s direct exposure. But, as I have said, we are part of the financial system of Europe and we will be affected if there is a Greek exit.

[Mr Dennis Skinner (Bolsover) (Lab)]

Instead of comparing Greece with Britain, would it not make more sense to compare Greece with Ukraine? Both are debtor nations, yet Ukraine is allowed to continue to borrow money from the IMF and Greece is not. Why is that, and did the right hon. Gentleman discuss that matter?

[Mr Osborne]

It is fair to say that the IMF has provided considerable support to both Ukraine and Greece. Indeed, the combined support that has been provided by the eurozone and the IMF is considerably greater to Greece. The discussion was the extension of the current programme, and of a potential new programme. Those negotiations were under way, but the creditors in this case were demanding certain conditions. That is what happens when a country is part of the euro, which is why I do not recommend our joining it.

[Several hon. Members]

rose—

[Mr Kenneth Clarke (Rushcliffe) (Con)]

I am always quietly inconspicuous in this Chamber, Mr Speaker.

Will my right hon. Friend confirm that the IMF has always made advances to countries in financial crises conditional on a programme of reform aimed at minimising the effect on creditors and, above all, on restoring a competitive and effective economy to prepare for a healthier future? It would be quite irresponsible for the IMF or the European Central Bank to abandon that approach at the moment. The best outcome would be for the Greeks to vote yes in the referendum. The one thing my right hon. Friend has not touched on is the great hardship that could be caused to the Greek people if they vote no and their economy goes into total collapse. Are there any discussions going on about the way in which the friends of Greece can mitigate those consequence for the ordinary Greek population? There is no quarrel in this House with Greece or the ordinary people of Greece who are not responsible for the mismanagement by their Government.

[Mr Osborne]

My right hon. and learned Friend is right to remind us that the people of Greece have paid a very high price for the mismanagement of their economy by previous Greek politicians and Greek Governments. Of course it is now a matter for the Greek people to decide their future, and we should respect that. I made it clear in my statement that most people now consider this referendum as one on whether Greece leaves the euro. Of course there are considerable consequences of taking that step, but I do not think we should be telling the people of Greece how to vote. It is for the people of Greece to make that decision, but they should be aware of the consequences. That is the broad approach that we shall take. The discussion of what would happen if Greece were to leave the euro should probably happen at a later date, but there will clearly be issues over the support that the family of western nations can provide to that country.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Chancellor for his statement and for early sight of it. I welcome what he said about private sector exposures to Greece being substantially lower than they were some years ago. Exposure to the banks is around £5.3 billion, down from £9 billion some years before. That would tell us that the risk of direct contamination is relatively low, but as we have seen today there is a risk to the banking sector across the EU, and the fall in bank stocks throughout Europe is witness to that. I welcome what the Chancellor said about the Government and the central bank being ready to ensure the financial stability of the UK, but it might be helpful if he said a little more about confidence today.

In terms of other exposure, we have rather modest exports to Greece, worth about £2.82 billion, or 1.2% of EU exports and 0.5% of UK global exports. That figure is modest but nevertheless important to the people whose jobs depend on those exports. Will the Chancellor say a little more about that? Perhaps export promotion could be stepped up to help find new markets for businesses that might find the Greek export market more difficult; or, as the hon. Member for Nottingham East (Chris Leslie) mentioned, export credit guarantees and other short-term cash flow help, should they be required, could be used.

Finally, notwithstanding what the Chancellor said about negotiations being at an end, will he confirm that the IMF has some leeway in when it declares that a repayment has been missed, in that the IMF’s managing director has up to 30 days to notify the board if a country does not make a repayment deadline? Does that not provide some flexibility to ensure that a deal can be reached and provide a strong incentive for discussions continuing beyond Tuesday, notwithstanding the forthcoming Greek referendum?

[Mr Osborne]

I thank the hon. Gentleman for his questions. I should say that this afternoon we have been in touch with the devolved Administrations in the United Kingdom to ensure that they are aware of the plans and to work with them on any issues faced by them and by citizens and businesses in Scotland, Wales and Northern Ireland.

The Bank of England and the Prudential Regulation Authority are, of course, monitoring extremely closely the situation with the four Greek branches in the UK and the subsidiary, although, as I have said, the subsidiary is protected by our compensation scheme and supervised by the Bank of England. There is, of course, advice available to businesses with export links to Greece, but there are capital controls in place so there are restrictions on the settlement of payments being transferred out of the Greek banking system. Businesses should be aware of that. Cash flow problems can be addressed by contacting HMRC.

As for the IMF, I do not want to prejudge the decisions of the managing director or the board. We will just have to wait and see what unfolds in the coming days. It is fair to say that the space for substantive negotiations before the referendum is pretty limited. Of course, we shall see what the outcome of the referendum is. I would merely observe that many of the senior figures in the eurozone have said that if Greece were to vote yes, negotiations would begin to try to find a satisfactory outcome for the Greek financial situation.

[Mrs Anne Main (St Albans) (Con)]

Greece, a small country of 5 million people, swept in with Syriza a Government promising to abolish austerity. Does my right hon. Friend think that there are any lessons to learn for a country much nearer to home with a population of about 5 million people that swept in a Government promising to abolish austerity?

[Mr Osborne]

The public will draw their own conclusions about that. Different countries are obviously different, but western democracies need to ensure that their welfare systems are affordable, their economies are competitive and their businesses can export and create jobs. That is a challenge for every single western democracy.

[Mr David Winnick (Walsall North) (Lab)]

In view of the intense hardship and suffering that millions of ordinary Greeks have already endured, why on earth should they agree to the further humiliation that is before them? In such circumstances, is it not clear that the Greeks should decide for themselves, as the Greek Government have rightly stated? It will be interesting to see whether they will agree to such humiliation being inflicted on them by voting against the Government’s recommendation.

--- Later in debate ---

[Mr Osborne]

I do not think anyone would presume to tell the Greek nation of all nations how to conduct a democracy. That is why I made it very clear in my statement that we respect the right of the Greek people to make decisions about their own future in an open and democratic way, and we do not presume to give them advice on that, but of course they need to be aware of all the consequences.

[Mr Christopher Chope (Christchurch) (Con)]

Does my right hon. Friend agree that if the Greek people wish to regain their sovereignty and once again become masters of their own economic destiny, they should be arguing to leave the eurozone and set up the drachma once again?

[Mr Osborne]

As I have already said, it is for the Greek people to make this decision, but my hon. Friend’s broader observations about the constraints of being in the euro are one of the reasons why he and I agree that Britain was right not to join and should not join in the future.

[Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)]

It is tempting to score domestic political points about the current plight of the Greek people, but does the Chancellor accept that the coming days will be very frightening and distressing for them and also for British people with friends and family in Greece? Will he assure the House that whatever the outcome of the referendum, Greece remains part of the family of nations and we will do what we can to mitigate the plight of the Greek people?

[Mr Osborne]

I said precisely that a few moments ago. We respect the decisions that the Greek people have to take. We also understand the real economic hardship that has been experienced by the Greek people because of the mistakes that previous Greek Governments have made, and the Greek people have borne the brunt of that. Whatever the outcome of the referendum and whatever the next few months hold for Greece, it is a very important part of the European family of nations. Greece has been an important ally of the United Kingdom for very many years and we will continue to stand alongside the Greek people during this difficult time.

[Mr Jonathan Djanogly (Huntingdon) (Con)]

If the ECB and/or the IMF failed to provide necessary liquidity, does my right hon. Friend think this could leave an opening for Russia? If that is the case, what are his security concerns?

[Mr Osborne]

It is not a great secret that we have not been entirely enamoured of the foreign policy pursued by the Syriza Government, but that has not affected these decisions.

[Mr Douglas Carswell (Clacton) (UKIP)]

The Chancellor has consistently called for more euro integration. He has lauded the remorseless logic of monetary union and called for fiscal, banking and economic integration. Only last month he called the euro a success. Does he still want Greece and others to wade further into this monetary mire? Might it not be right for the Government to support other member states having the currency freedom that we in this country enjoy?

--- Later in debate ---

[Mr Osborne]

Just as I do not particularly like other nations telling the British nation how to conduct its own affairs, I do not think we should go around lecturing others. They have chosen to form a currency; we chose not to join it. The point I have made is that there is a remorseless logic to being part of the eurozone that leads to greater political, fiscal, financial and economic integration. That is why I do not want to be part of it. I have also made the point that that integration, although necessary to secure the stability of the euro, has an impact on the UK as a large non-euro member. That is one of the issues that should be addressed in the renegotiation. We would not be having a renegotiation if we had not had a Conservative Government elected and able to put this issue to the British people in a referendum, and quite a lot of us in this House worked to achieve that Conservative Government.

[Richard Fuller (Bedford) (Con)]

What assessment has my right hon. Friend made of the financial risks based on Greece’s decision spreading to the sovereign debt of other eurozone countries? Can he assure the House that the Bank of England has done whatever it can do to ensure that if financial risk does spread, British companies and British banks are secure?

[Mr Osborne]

As I have said, Britain is much better placed than it was a few years ago; our banking system is much better capitalised. Of course, the eurozone and the European Central Bank have previously taken steps to try to contain the contagion, for example by setting up the outright monetary transactions programme and the European stability mechanism—in other words, various bail-out mechanisms that came into operation during Spain’s financial problems a couple of years ago—but I was very clear in my statement that a Greek exit from the euro would have an impact on Europe’s financial system and knock-on effects for the UK. I do not think that anyone should underestimate the challenge of establishing that a country could leave the euro. Those are all issues that we need to be alert to in the months ahead.

[Mike Gapes (Ilford South) (Lab/Co-op)]

Does the Chancellor accept that glib comparisons between Greece and other countries do not take account of the fact that even before the global financial crisis Greece’s debt-to-GDP ratio was 100%? It rose to 170% by 2011, which was much worse than in Spain, Italy or this country. Therefore, should he not concentrate on the specific problems of the previous Governments in Greece who created the situation and the dysfunctional coalition between the far left and the far right, which seems unable to make sensible decisions?

[Mr Osborne]

I was making the observation that the UK is far better prepared than it was five years ago, when we had a budget deficit of over 10% and an undercapitalised banking system—something I was well aware of, because the Greek crisis had its first big flare-up a few days before I became Chancellor of the Exchequer. We are in a better position, but I do not pretend that the UK will be immune from the impact of the financial problems in the eurozone.

[Lucy Frazer (South East Cambridgeshire) (Con)]

I welcome the extensive efforts that the Chancellor has outlined for protecting the British public. One of the measures he mentioned was that UK Government payments would still be made, including state pensions. If that money is being sent to Greek banks, is he taking steps to confirm that it will be ring-fenced so that, in the event of the insolvency of any Greek banks, it will not be lost to British citizens?

[Mr Osborne]

My hon. Friend raises one of the challenges we face. There are around 6,000 people in Greece who receive British pensions or British public sector pensions, and around 2,500 of them have Greek bank accounts into which the payments are made. We cannot protect people’s Greek bank accounts in such a situation—that is for the Greek authorities to do—which is why we are contacting the individuals concerned and saying that if they wish to have the payments made into British or non-Greek bank accounts, we will make that switch as soon as we can. We are ready to do that immediately.

[George Kerevan (East Lothian) (SNP)]

I put it to the Chancellor that there is another way in which the Greek crisis could impact on the UK economy: a Greek exit, or even simple market turbulence, could lead to a precipitant and lasting fall in the value of the euro, which would have an impact on British farm incomes because they are denominated in sterling. Will he speak with fellow Ministers to ensure that British farmers in that situation will be compensated?

[Mr Osborne]

It has long been the practice—it has certainly been my practice and, to be fair, also that of my immediate predecessors—not to comment on the value of the currency, and I do not intend to do so today.

[Paul Scully (Sutton and Cheam) (Con)]

The events in Greece are a stark reminder of the uncertainty that remains in the global economy. Can my right hon. Friend reassure my constituents that the Government’s long-term economic plan factors in and faces up to that uncertainty, rather than trying to ignore it?

[Mr Osborne]

I can give that reassurance to the residents of Sutton and Cheam, and indeed of the rest of the UK. This country’s budget deficit remains too large. We have taken important steps to strengthen our banking system, and now we must ensure that it remains competitive and healthy, which is why we are taking steps to exit from Government shareholdings. Of course, in the Budget and in the spending review this autumn we will take further steps to deal with our budget deficit and run a surplus in normal times so that we are better prepared for whatever shocks the world throws at us.

[Catherine West (Hornsey and Wood Green) (Lab)]

Will the Chancellor confirm that a solution to the Greek financial crisis depends on a long-term political negotiation to keep Greece in the EU, that our Government have an active role to play in that, and that failure to agree a political settlement will undermine any future argument we might wish to pursue for the integrity of the European Union as a whole?

[Mr Osborne]

It is fair to say that Greece’s membership of the European Union, as opposed to membership of the eurozone, was an important step in that country’s transition from fascist dictatorship to democracy and in entrenching that democracy, and I think that view is broadly held by the Greek people, whatever their views about the current financial situation or their membership of the euro. I repeat that whatever happens we stand alongside Greece as an important member of the family of European nations.

[Mr Stewart Jackson (Peterborough) (Con)]

Almost 20 years ago a number of us predicted the disastrous consequences that would be visited on small countries as a result of monetary convergence and the single currency, and so it has come to pass this week with Greece, which it seems is being smashed on the altar of German monetary policy. With that in mind, will the Chancellor give the House an undertaking that proposals for further future financial convergence—a single EU-wide corporation tax rate, which would damage the British economy—will never see the light of day?

[Mr Osborne]

I will tell my hon. Friend what I have to say about that: we are not going to sign up to some European corporation tax rate.

[John McDonnell (Hayes and Harlington) (Lab)]

Is it not ironic that the institutions that turned a blind eye to Greece’s economic situation when it joined the euro and then did nothing about profiteering through speculative lending to the Greeks throughout the period afterwards are the same organisations that are now withdrawing liquidity before the result of the referendum and therefore before the Greek people have made their decision? We are not members of the eurozone, but we are supporters of the International Monetary Fund. Therefore, was the Chancellor consulted about the timing of the withdrawal of liquidity in advance of the referendum and, if so, what view did he express?

[Mr Osborne]

The decision to which the hon. Gentleman refers was taken yesterday by the European Central Bank, and it was a decision not to expand the amount of liquidity assistance provided; it did not cancel the existing liquidity assistance. We are not in the eurozone, of course, so we are not part of the European Central Bank, but there have been close discussions and the European Central Bank is keeping the Bank of England directly informed about the decisions it is making.

[Simon Hoare (North Dorset) (Con)]

My right hon. Friend will remember the back story to the Don Pacifico incident. What advice will he, the Foreign Secretary and the Foreign Office be providing to British citizens residing in Greece or visiting Greece during the holiday season about their physical safety and security, because, whatever the result of the referendum, there could be periods of intense unrest across the country?

[Mr Osborne]

I will not attempt to say the Latin phrase that Palmerston used at the time of the Don Pacifico affair, but I will say that we of course stand ready to help British holidaymakers. The best thing that they can do is ensure that they are well prepared, and the best thing that we can do is ensure that the advice they need is provided. Greece is clearly one of the most popular holiday destinations; at the moment 150,000 British citizens go there every week in July. That is why we have changed the travel advice and said clearly that people should take with them the euros they need for their holiday, or at least not assume that getting cash out of an ATM will be straightforward. They need to think through those issues, which is why we are providing that advice.

[Ian Paisley (North Antrim) (DUP)]

Advising constituents to carry with them large amounts of cash obviously poses significant questions about security. What advice and guidance can the Chancellor ensure has been given to the Greek authorities to protect British people who are carrying large amounts of cash?

[Mr Osborne]

Of course, Greece has an effective police force. The advice we are giving to people is just the commonsensical advice that they should look after their possessions when they are on holiday, and of course people do that. It is all part of the full travel advice that is on the website.

[Several hon. Members]

rose—

[Mr John Baron (Basildon and Billericay) (Con)]

Greece reminds us all that one can defy economic logic for only so long. Given that eurozone growth rates are well below global growth rates—in the economic slow lane—and that unemployment rates are that much higher, largely caused by the drive towards economic and political union, what cast-iron safeguards are we negotiating to ensure that we retain our sovereignty such that we do not get drawn into this ever-closer union?

[Mr Osborne]

As my hon. Friend well knows—the Prime Minister was explaining this at the Dispatch Box just an hour or so ago—one of the issues we are seeking to address in our renegotiation is Britain’s involvement in ever-closer union, which is not something that the British people are very comfortable with. I would make the broader observation, which relates both to the UK and to members of the eurozone, that we have to make the European continent, ourselves included, a competitive place to do business. We have to have businesses that can export around the world. We have to be able to make sure that jobs are being created in the European Union. A very important strand of what we are seeking to change in our relationship with the European Union is to make the EU more competitive for all its citizens, Greek as well as British.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Since implementing austerity measures in return for loans has shrunk the Greek economy by a quarter and massively increased its debt-to-GDP ratio, as well as caused untold suffering, will the Chancellor consider increasing calls for the organisation of a European conference, similar to the London conference of 1953 for Germany, to agree a package of debt cancellation and restructuring, which is likely to be a far more effective way of addressing both the economic and the social crisis unfolding in Greece?

--- Later in debate ---

[Mr Osborne]

I make the broad observation that ultimately countries have to live within their means; we see what happens if they do not. On the Greek debt situation and the burden of Greek debt, eurozone members were in discussions about the terms of debt repayments and the like, but those negotiations were broken off on Saturday because of the unexpected announcement by the Greek Prime Minister on Friday.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

Does not the eurozone states effectively endorsing a plan for fiscal and banking union, as proposed by the five eurozone Presidents, regardless of the treaty that the Prime Minister vetoed in December 2012, underline the urgency for the Chancellor to deliver on the dilemma that he outlined in a speech on 15 January 2014, when he said:

“The…Treaties are not fit for purpose.”

He also said:

“If we cannot protect the collective interests of non-eurozone member states then they”—

meaning we—

“will have to choose between joining the euro, which the UK will not do, or leaving the EU.”

Can he explain why those words have been taken down from the Downing Street website?

[Mr Osborne]

I have absolutely no idea; I thought it was one of the better speeches I gave over the past five years. My hon. Friend will be glad to know that I repeated exactly those arguments, including the phrase about the challenge of Britain having to choose, in the Mansion House speech that I gave just a couple of weeks ago. That is certainly up on the Treasury website.

[Helen Goodman (Bishop Auckland) (Lab)]

A further collapse in the Greek economy would obviously be extremely bad for the Greek people and for our exporters, particularly in pharmaceuticals. Even the Financial Times this morning described the creditors programme as “economically counter-productive”, and we have learned that the US Treasury Secretary urged the creditors to take a more compromising stance. Did the Chancellor follow the American lead, and will he do so as the days go by?

[Mr Osborne]

I do not want to go into the private discussions we had, but we said very publicly that both sides needed to reach a compromise. We did not say that this was exclusively a challenge to the Greek Government; we said that the eurozone also needed to work towards a compromise. I think it is fair to reflect on the fact that the reason we are having this statement and the reason there are capital controls and the like is the unilateral decision by the Greek Government on Friday. We respect the vote in the Greek Parliament, and of course we will respect the decision of the Greek people, but that was the change in the dynamic that happened over the past three days.

[Marcus Fysh (Yeovil) (Con)]

In order to recover, Greece needs bigger debt relief than is currently on the table and massive pro-market structural reform and support. Neither the EU, the international institutions, nor Syriza currently offer those things. This problem presents serious ongoing economic and strategic risks for us in Europe and beyond. What are our Government doing to ensure that Greece gets what it needs?

--- Later in debate ---

[Mr Osborne]

I agree with my hon. Friend that the Greek economy needs to be more competitive. Clearly—I think this is the universal observation—the Greek economy needs important structural reforms. Ultimately, those have to be delivered by the Greek Parliament and by Greek Governments. Of course, we are happy to provide assistance. Indeed, over the past five years we have provided advice and assistance to the Greek Treasury and others about how to undertake those reforms. There is now the more immediate issue of the referendum.

[Nick Thomas-Symonds (Torfaen) (Lab)]

Many of my constituents who will be visiting Greece over the next few weeks will have heard the Chancellor’s advice about carrying a sufficient number of euros with them for the duration of their holiday. Given that this is a fast-moving situation, and that many people may be concerned about the safety implications of carrying large amounts of cash, will he undertake to monitor access to money in Greece on a daily basis to ensure that the Foreign Office advice on the website is as up to date as possible?

[Mr Osborne]

The hon. Gentleman asks a perfectly fair question. We have thought about this quite carefully. Clearly, it is a very uncertain situation. As things stand, the Greek Government have gone to considerable lengths to try to make sure that tourists can continue to access cash through ATMs and that the payments that they make with credit cards and the like are accepted by Greek businesses. It is an uncertain situation that is changing rapidly, and of course people could be on holiday when it does change, so we are suggesting to them that they be prepared. That advice will be updated whenever it needs to change; we keep it under constant review.

[James Cleverly (Braintree) (Con)]

I welcome the mitigations that my right hon. Friend has put in place to protect British citizens and the British economy, but I cannot see an outcome to the current Greek situation that will not have a detrimental effect on the British economy. Will he therefore assure this House that as part of the long-term economic plan he will include a commitment to expand and extend our trading relationships globally, particularly to fast-growth Commonwealth economies, to help spread our risk?

[Mr Osborne]

My hon. Friend makes a very important point. Britain is overly dependent on its exports to the rest of the EU. About 50% of our exports go to the EU. We have been working very hard to expand our exports to fast-growing economies in Asia, Latin America and Africa. Although, in general, UK export performance has been quite disappointing in recent years, that is principally because of the weakness of the European economy. Our export performance to many of these emerging economies has been very much better, and we want to build on that—particularly, of course, our links with the Commonwealth countries.

[Stewart McDonald (Glasgow South) (SNP)]

I offer the Chancellor this analysis: the class divide is with us in this debate. On the one hand, the rich people in Greece are moving their money out of the country, with the IMF lobbying on their behalf for further public sector cuts and against tax rises for the rich, while poor and working-class people in Greece are forced to live with access to only €60 of cash a day. So here’s the question: whose side is the Chancellor on?

--- Later in debate ---

[Mr Osborne]

I am not very impressed with anti-austerity crusaders who promise the earth and cannot deliver.

[Craig Mackinlay (South Thanet) (Con)]

The slide of the Greek economy has been long, slow and increasingly painful as it has lurched from one bail-out crisis to the next. The fundamental failure is, of course, the euro at its heart and I do not feel that a new deal now will do anything to solve that. Might a no vote next week be the best outcome, and will my right hon. Friend offer practical support to Greece when it inevitably and sensibly reinstates its own currency?

[Mr Osborne]

I completely respect my hon. Friend’s opinion, but it is better from my position to say that it is for the Greek people to decide in that referendum. Of course, whatever the outcome, my hon. Friend is absolutely right to say that we are there as a friend of Greece to help it at this troubled time whatever course it chooses to take.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Successive Greek Governments must take responsibility for failing to deliver a sufficiently competitive Greek economy, but does the Chancellor agree that Greece’s creditors need to look at their own behaviour, too? The bail-out five years ago has fundamentally left Greece less able to pay its debts than beforehand. Surely the IMF and the European Commission must learn those lessons, too.

[Mr Osborne]

I think that the European Union in general has not taken sufficient trouble to make the European economy more competitive, less regulatory and a place where enterprise can flourish and private sector jobs can be created. That is one of the principal arguments we are having at the moment in European Councils.

[David T. C. Davies (Monmouth) (Con)]

Does not this unfolding catastrophe demonstrate very clearly what happens to nations when they cannot balance their own books and rely on borrowed cash? Does my right hon. Friend agree that we need to learn the lesson from this, pay down our deficit and not take any notice of Opposition Members who have done their best to put us in the same situation that Greece is in now?

[Mr Osborne]

I agree with my hon. Friend that countries need to pay their way in the world. Britain had a budget deficit of more than 10% when the Conservative Prime Minister came to office five years ago. As a result of the action we have taken—universally opposed by the forces opposite—we have made the UK much more secure to deal with these sorts of shocks, but the job is not finished and I am sure my hon. Friend will be in his place on Budget day as we set out the steps we are going to take to finish it.

[Wes Streeting (Ilford North) (Lab)]

Given the seriousness of the situation and the impact that a Greek exit from the euro would have not just on the eurozone economies but on ours, too, is not the Chancellor slightly embarrassed by the unnecessarily partisan tone he is taking in some of his replies? Will he say a bit more about the protections he is considering in order the limit the exposure of British businesses and people with interests, including family interests, in Greece?

[Mr Osborne]

I would not regard it as partisan to point out that we need to reduce our budget deficit, make sure our banking system is properly capitalised and have a more competitive economy. If the hon. Gentleman takes that as a partisan comment, that is more of a reflection on his party than on mine.

[Peter Heaton-Jones (North Devon) (Con)]

Many of my constituents in North Devon have raised with me time and again their opposition to the notion of the United Kingdom ever joining the eurozone. Does my right hon. Friend agree that the current chaos in Greece absolutely justifies their opposition, and will he once again take this opportunity to reassure my constituents that under this Government we will never join the euro?

[Mr Osborne]

I can absolutely give that assurance to my hon. Friend and his constituents in North Devon: we are never going to join the euro. Because of all the conditions that come with membership, we do not think it would be in the economic interests of the United Kingdom. We have consistently held that position. I pay tribute to the person I used to work for and who has now left the House, William Hague, who stood out against the consensus in the late 1990s and helped keep Britain out of the euro.

[Nick Smith (Blaenau Gwent) (Lab)]

The Chancellor has said that UK citizens with deposits in Greek banks are not covered by our UK compensation scheme. How many UK citizens are affected by that and how does he plan to help them?

[Mr Osborne]

As I said in my statement, there are four branches of Greek banks in the UK. They have total deposits of about £200 million, which is, of course, a significant sum of money, but it is not that large compared with many other banking deposits, and the number of account holders is relatively low. I have made it very clear today that those account holders are not covered by the UK deposit protection scheme. I should also say that most of those individuals are not British citizens.

[Damian Green (Ashford) (Con)]

My right hon. Friend rightly points out that Britain’s increasing economic stability is necessary, not least to withstand economic shocks from elsewhere, such as that under discussion. Does he think that any further measures are necessary to protect British financial institutions that may be holding Greek debt, which will clearly be of decreasing value?

[Mr Osborne]

UK banking exposure to Greece is dramatically less than it was in 2012, when there were very real concerns about a Greek exit from the euro. That is also the case with regard to the exposure of French and German banks to Greece, which, of course, has a knock-on effect on the UK. As I have said, less than 1% of the core tier 1 capital of the UK banks is in Greek debt, and I think they are well prepared for whatever eventualities unfold.

[Derek Twigg (Halton) (Lab)]

We all hope for a resolution in Greece, but clearly it cannot be right to force more cuts and austerity on the Greek people and increase the pain they have already suffered. The Chancellor said in his statement that

“we hope for the best, but we prepare for the worst.”

Could he tell us what “the worst” is for the UK?

[Mr Osborne]

Clearly, we are a large economy that is probably the most interconnected and open of the major economies of the world. We have a very large financial sector, so we are exposed to financial turbulence wherever it occurs in the world, which is all the more reason why we need a proper system of regulation and we have now put the Bank of England in charge of regulation. We also need properly capitalised banks—under that new system of regulation, our banks have been recapitalised—and we need to make sure that we are not carrying a very large budget deficit. We have halved the budget deficit and we will take further steps next week to reduce and eliminate that budget deficit. We are prepared for whatever the world throws at us.

[Mr Peter Bone (Wellingborough) (Con)]

Does the Chancellor agree that, on occasion, we have to tell friends things that they do not want to hear? In that regard, would it not be better to tell our friends in the eurozone that, certainly in the medium and long term, a Greece exit from the euro and the return of its national currency, which it could then devalue, would be the right thing to do?

[Mr Osborne]

Of course, there are occasions when we have to tell our friends things they do not want to hear, but it is also a good rule in life to pick our moment and I am not sure that this is the right moment.

[Several hon. Members]

rose—

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

The Chancellor said in his statement that eurozone authorities

“stand ready to do whatever is necessary to ensure the financial stability of the euro area”.

That may well be tested to the full in the coming weeks. Given that the lesson of the exchange rate mechanism is that pressure will undoubtedly be mounting on other European currencies and economies, what contingencies does he have in place to make sure there is no domino effect?

[Mr Osborne]

As I say, the primary responsibility lies with the eurozone and the European Central Bank, and they have put in place better mechanisms than they had three or four years ago. The European Central Bank has its outright monetary transactions mechanism, we have the European stability mechanism—in other words, bail-out funds—and the European Central Bank is also taking a supervisory role, so they are better prepared. However, I was very clear in my statement that however well prepared they are, a Greek exit from the euro would be a substantial financial shock, which would have an impact on the European financial system and on us. That is why we have taken steps to make sure our banking system is better prepared than it was seven or eight years ago.

[Chris Heaton-Harris (Daventry) (Con)]

There are no provisions in European treaties for a country to leave the euro, let alone to leave the euro and stay within the EU, so should Greece leave the eurozone, will not European treaties need swift and significant amendment?

[Mr Osborne]

As is often the case, my hon. Friend has gone to one of the interesting points in this whole issue. The best thing to do at the moment is to see how things unfold in the next few weeks, but it is fair to say that there is not an easy and clear mechanism for Greece to leave the euro.

[Mike Kane (Wythenshawe and Sale East) (Lab)]

In the tone of the questions asked by the right hon. and learned Member for Rushcliffe (Mr Clarke) and my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott), Greece is, in its own right, a strong bilateral partner to the UK, independently of the eurozone or the EU. I would like to hear more detail of the counsel we have given Greece. More importantly, should not the message be that we stand in solidarity with the Greek people in their time of trouble, whether or not their Government accept that counsel?

[Mr Osborne]

The hon. Gentleman is right to say that Britain has been a long-standing friend of Greece and the Greek people. There is huge affection in Britain for the country and its people, as evidenced by the fact that so many people choose to spend their holidays there. There is such solidarity and friendship with Greece, but Greece has to make its own decisions.

On our contacts with the Government—I was asked about them earlier—I have of course spoken over the past few months with the Greek Finance Minister and our Prime Minister spoke to the Greek Prime Minister just a week or two ago.

[David Mowat (Warrington South) (Con)]

One aspect of all this is the amount of money that the IMF might be about to lose. That money was subscribed by some of the poorest countries in the world, including countries poorer than Greece. Does the Chancellor agree that it would be quite wrong for places such as India to take a hit for any of this? Has he had any discussions to that effect with the IMF?

[Mr Osborne]

As I said earlier, the IMF has preferred creditor status and it has precautionary balances—in other words, it can withstand losses—and no one has ever lost money by providing support to the IMF, so we should bear that in mind as we have these discussions.

[James Morris (Halesowen and Rowley Regis) (Con)]

Notwithstanding the steps the Chancellor has taken to contain the immediate crisis, does he agree that the broader lesson for Europe is that unless countries are determined to reform their welfare system, tackle public sector pensions and improve competitiveness, we may see other such crises in southern Europe?

--- Later in debate ---

[Mr Osborne]

Over the past five years, we in this country have of course taken steps to reform our welfare system to make sure it is affordable and to reform our public sector pensions so that we can go on providing assistance to our population and help the most vulnerable in our population. The broader point is that the people who suffer when an economy fails and a Government spend more money than they have are the poorest people in the country, not the richest.

[Mr Philip Hollobone (Kettering) (Con)]

Given their own predicament, how supportive have the Greeks been to the Prime Minister in his efforts to renegotiate Britain’s terms of membership of the EU?

[Mr Osborne]

To be fair to the Greeks, they have been quite preoccupied, but they have certainly not, to my knowledge, expressed any great opposition.

[Mike Wood (Dudley South) (Con)]

Would it not be devastating to the credibility of the eurozone if European institutions were seen to favour political considerations in relation to keeping Greece within the single currency ahead of basic economics?

[Mr Osborne]

I have always felt that good politics flows from good economics. Ultimately, what we all want to see are more jobs and investment in Greece and an economic policy that allows that to happen.

[Chris Philp (Croydon South) (Con)]

The Chancellor has already assured the House that, thanks to the Government’s actions, UK banks are strong enough to withstand any Greek crisis. Are any European financial institutions of concern to the Chancellor, and do UK pension funds and insurance companies have any alarming exposures?

[Mr Osborne]

Across the British financial system, there has been a very marked reduction in our exposure to the Greek economy and banking system over the past couple of years, so we are much less exposed to the direct consequences of financial problems in Greece than we would have been a few years ago. More broadly, that is also the case across the European economy. The biggest risk that we faced a few years ago was our exposure to economies and banking systems in other eurozone countries that had relationships with Greek banks, but they too have reduced their exposures.

[Luke Hall (Thornbury and Yate) (Con)]

We all urge the people of Greece to reach a resolution to the current situation. Does the situation not perfectly demonstrate why Britain needs a credible economic plan that keeps our economy secure when there is uncertainty abroad, as well as when there is stability?

[Mr Osborne]

My hon. Friend is absolutely right. The situation illustrates why you need a credible economic plan, why you need to make sure that your country is protected from shocks happening around the world and, in short, why you should fix the roof when the sun is shining.

[Kevin Foster (Torbay) (Con)]

The situation in Greece demonstrates that one cannot mix a single currency with numerous and in some cases reckless fiscal policies. We discussed that point during the Scottish referendum last year. Will my right hon. Friend reassure my constituents that the necessary steps are being taken to protect UK interests whatever the outcome of the forthcoming referendum?

[Mr Osborne]

I can assure my hon. Friend that we are taking such steps, and we are working closely with the Governor of the Bank of England. My hon. Friend’s broader observation about credible fiscal policy, whether in the United Kingdom or in the broader European economy, is well made.

[Bob Blackman (Harrow East) (Con)]

One of the options that the Greek Government appear to be pursuing is that of a Russian bail-out. What assessment has my right hon. Friend made of the impact of such a scheme on banks in London and the eurozone in particular?

[Mr Osborne]

As I said earlier, I do not think that anyone has been particularly enamoured with Syriza’s foreign policy, but what has been clear over the past few weeks is that it really needs to resolve the issue it faces with the eurozone.

[David Morris (Morecambe and Lunesdale) (Con)]

As the Government’s self-employment ambassador, I have had texts from a lot of people during this statement. They are worried about late payments by businesses in Greece and, more to the point, draconian steps that may be taken by Her Majesty’s Revenue and Customs. Will the Chancellor reiterate the steps that could help such small enterprises to flourish by being paid more quickly?

[Mr Osborne]

I very much commend my hon. Friend for the work he does. Let me reiterate that HMRC is ready to operate the time to pay scheme to help both the self-employed and small businesses—and, indeed, larger firms—who have problems because there have some kind of financial transaction with a Greek company and have been caught up in the Greek Government’s capital controls. There is advice on the Department for Business, Innovation and Skills website, and they can get bespoke advice by phoning the helpline.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

It is worth placing on the record my constituents’ gratitude to the Chancellor for taking us out of the eurozone bail-out mechanism. London serves as a centre for the Greek shipping industry. What assessment has the Chancellor made of the impact on that industry of the crisis in Greece?

[Mr Osborne]

Frankly, a lot of that industry is pretty international these days, and I suspect quite a lot of those involved in it have foreign bank accounts as well as Greek bank accounts. It is a very important industry, and it is one of the industries that can help the Greek economy if that economy is competitive. One of the big issues in Greece has of course been the competitiveness of the Greek ports in particular.

More broadly, I thank my hon. Friend for his support of the action we took during the last Parliament. More properly, I should credit the Prime Minister, who secured exit from the eurozone bail-outs at an important European summit.

[Alan Mak (Havant) (Con)]

Our economic and financial security and the protection of household budgets are of paramount importance to my constituents. Can the Chancellor reassure the House and my constituents that every step is being taken to urge a resolution abroad, and to protect taxpayers and savers here at home?

[Mr Osborne]

I can reassure my hon. Friend that we are taking steps not just to protect the UK from whatever the Greek crisis throws at us but, more broadly, to ensure our economic stability here at home. That will be an important part of the Budget that I will present to the House next week.

ECOFIN

George Osborne Excerpts

Tuesday 23rd June 2015 Written Statements

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

A meeting of the Economic and Financial Affairs Council was held in Luxembourg on 19 June 2015. Ministers discussed the following items:

Bank Structural Reform

Council reached a general approach on this file.

European Fund for Strategic Investments (EFSI)

Ministers were updated by the presidency on progress in relation to the EFSI. The Council presidency anticipate reaching a First Reading agreement on the regulation by the end of June.

Administrative Co-operation

Ministers held an exchange of views on the presidency proposal on mandatory automatic exchange of information on tax rulings.

Interest and Royalties Directive

Ministers held an exchange of views on the presidency compromise on the proposal for a common system of taxation applicable to interest and royalty payments made between associated companies of different member states.

Current Legislative Proposals

The presidency gave a state of play update on current legislative proposals in the field of financial services.

Commission Communication on Corporate Taxation

The Commission presented the main elements of the action plan on corporate taxation, which was released on 17 June.

Implementation of Banking Union

The Commission updated the Council on the status of implementation of the banking union, focusing on the ratification of the intergovernmental agreement on the single resolution fund and implementation of the bank recovery and resolution directive.

Capital Markets Union

Council adopted Council conclusions on capital markets union.

Contribution to the European Council Meeting on 25-26 June 2015—European Semester

Council discussed country specific recommendations and prepared a discussion for the June European Council on the European semester.

Contribution to the European Council Meeting on 25-26 June 2015—Broad Economic Policy Guidelines

Council adopted a report to the European Council on the recommendations on broad economic policy guidelines.

Contribution to the European Council Meeting on 25-26 June 2015—Report on preparing for next steps on better economic governance in the euro area

Council received a state of play update on the report on preparing for next steps on better economic governance in the euro area.

Implementation of the Stability and Growth Pact

Council adopted Council decisions and recommendations in the context of the excessive deficit procedure.

[HCWS47]

Oral Answers to Questions

George Osborne Excerpts

Tuesday 16th June 2015 Commons Chamber

[Mr David Hanson (Delyn) (Lab)]

1. If he will make representations to the Bank of England on the publication prior to the EU referendum of its assessment of the effect on the UK economy of the UK leaving the EU.

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

Thanks to this Government, the British people will at last have their say on British membership of the European Union. The Bank of England is of course independent, and any questions about publication should be directed to it. The priority of the British Government is clear: the best outcome for the UK economy is that we achieve major economic reform of the European Union for the benefit of Britain and for the whole of Europe. That is why the Prime Minister and the rest of the Government are now fighting hard to achieve that, and we are confident we will succeed.

[Mr Hanson]

Airbus industries, Toyota vehicles and Vauxhall Motors—all serving my constituency, and employing thousands of people—have all said they believe that the future of the UK economy is in Europe. Would it not be useful for the Chancellor to put pressure on the Bank of England to produce any internal report, and indeed to publish any Treasury reports, so that we can see once and for all what exit from the European Union would mean for our UK economy?

[Mr Osborne]

I completely agree with the right hon. Gentleman that companies such as Airbus make a huge contribution to the economy not just of north Wales but of the whole United Kingdom, and we want them to succeed. That is why we want the European Union to be a place that attracts jobs and investment from around the world. We are seeking reforms because we do not think at the moment that the European Union is heading in the right direction. I welcome his participation in this debate, and I can assure him that the Treasury will participate in it as well.

[Mr Andrew Tyrie (Chichester) (Con)]

The Bank of England may be operationally independent, but does the Chancellor agree that Parliament and the Treasury Committee are likely to see the Bank as having a duty to share its thinking, at least as far as it affects its statutory objectives of monetary and financial stability, on the impact of the UK’s membership of the EU?

[Mr Osborne]

I certainly do not presume to tell the yet-to-be-formed Treasury Committee how to go about its business, but I would be very surprised if it did not want to have sessions on this vital issue of Britain’s future membership of the European Union. It is of course within its power to ask the Bank’s Governor and indeed other members of the Bank of England to attend; they do attend regularly. It would be very surprising if the Bank of England was not engaged in these crucial economic and financial issues. That is part of its statutory responsibilities, and I think we would all be disappointed if it was not engaged.

[Bill Esterson (Sefton Central) (Lab)]

Thirty-one per cent. of businesses surveyed by Ernst and Young have said that they will either freeze or cut investment until the result of the EU referendum is known. Does the Chancellor accept that that uncertainty will cripple our economy until this is sorted out once and for all? Does he accept that that is a reason for bringing forward the date of the referendum as fast as possible?

[Mr Osborne]

If the hon. Gentleman is worried about the effect of the EU referendum, why did he vote to have one? We have heard the argument over the past couple of years that the fact of having a referendum would put a dampener on investment. In fact, we have attracted the lion’s share of investment in the European Union since my right hon. Friend the Prime Minister set out our policy, and he has now won public support for that policy. Of course we now want to resolve the uncertainty, but the way to do that is to achieve a good deal in the European Union and put that deal to the British people at the referendum, and we will have the referendum when we have the deal.

[Philip Davies (Shipley) (Con)]

Given that even the most fanatical supporters of our membership of the European Union now accept that we could trade freely with the EU even if we left, will the Chancellor set out for us exactly what we get for our £19 billion a year membership fee?

[Mr Osborne]

I certainly commend my hon. Friend for his consistency. I remember that in his maiden speech he made the case for Britain leaving the European Union, and he will of course have his opportunity in the referendum. I would say that this is precisely the judgment that the British people and this Parliament have to make: what are the economic benefits of our European Union membership, such as the single market, and what would be the alternative? That will be part of the lively debate, and as I say, the Treasury will be fully involved in that debate.

[Stewart Hosie (Dundee East) (SNP)]

There have already been a number of serious interventions in this debate suggesting that the in/out referendum will be disruptive for inward investment. At the very least, businesses seeking to invest need the certainty of knowing what the Chancellor believes success will be in the Prime Minister’s negotiations. Will he tell the House today what he considers success in terms of the outcome of the Prime Minister’s negotiations?

[Mr Osborne]

There are, of course, a number of things that we want to achieve. Speaking as the Chancellor of the Exchequer, I want to ensure that the European Union works for the citizens of the European Union and of the United Kingdom. That means that it must be a place where businesses want to grow, where jobs are created and that attracts investment from around the world. I do not want Europe to be the place that used to be the dynamic centre of the world, but is not any longer. That is what we are fighting for, and if we achieve it, it will be a success.

[Stewart Hosie]

We all want to see a dynamic EU, but there were no specifics in that answer. Is it not the case that however bad the negotiations, the Chancellor will declare them a success, and however good the negotiations, the out-at-any-cost brigade will declare them an unmitigated disaster? Instead of pandering to the UKIP agenda, should the Government not pull the whole idea of this daft referendum?

[Mr Osborne]

I do not want to say this to the SNP spokesman, but I am not sure that he is speaking for Scotland, because 58% of Scots want a referendum and 63% of SNP supporters want a referendum. He needs to get in touch with his grassroots.

[Mr James Gray (North Wiltshire) (Con)]

It is extremely important that the Bank of England report and, indeed, other Government reports and other organisations’ reports on this matter are published in the course of the next two years. However, does the Chancellor of the Exchequer not agree that it is vital that such documents, which may well affect the outcome of the referendum, are not published in the so-called purdah period of six to eight weeks before the referendum?

[Mr Osborne]

As was made clear by the Foreign Secretary in debate and by the Prime Minister from this Dispatch Box, there are serious issues to address about the current law on referendums, because we believe that it would make the debate on the European Union unworkable and inappropriate. We understand the concerns in all parts of the House about that, and we will come forward with reassurances that enable the proper business of government to continue and allow the Government to make the case for the outcome that is achieved and the vote that we recommend, but that ensure that there is not an unfair referendum and that the Government do not, for example, engage in mass communication with the electorate. Those matters will be discussed later today.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

The debate and conduct during the referendum campaign must be, and must be seen to be, legitimate and well informed. He has failed to do so thus far this morning, but will the Chancellor make it clear that he agrees that, in the interests of transparency, the Bank of England should publish full details of its risk assessment, which is codenamed Project Bookend, its terms of reference, its personnel and its timetable? Will he add his voice to our call that any publication of the report must happen well in advance of the vote?

[Mr Osborne]

I welcome the hon. Lady to her new position as shadow Chief Secretary—long may she continue in it. It is not for me or even, dare I say it, her to tell an independent Bank of England what to do. I have no doubt that it will engage in the debate. Indeed, the Governor of the Bank of England has made it perfectly clear that it will do so. I have no doubt that the Treasury Committee, when it is formed, will want to ask the Bank of England questions about the European Union, because it is central to many of the Bank’s responsibilities. However, as I have said, we have an independent central Bank and I propose to keep it that way.

[Shabana Mahmood]

There is still no clear answer from the Chancellor and he has given no commitment to push for the transparency that the debate demands. He has a clear responsibility to ensure that the economic impacts are debated and fully understood. I know that he has his mind on other things these days, like moving next door to No. 10, but if he will do nothing further on Project Bookend, will he at least step up and lead the debate by agreeing to commission and publish reports by the Treasury and the Office for Budget Responsibility on the economic impact of the UK leaving the EU?

[Mr Osborne]

As I have said repeatedly, we are certainly going to take part in the debate. I am sure that the Treasury will publish assessments of the merits of membership and the risks of a lack of reform in the European Union, including the damage that that could do to Britain’s interests. For example, in my Mansion House speech, I talked about the risks for Britain as a non-euro member as the eurozone continues to integrate and about how that needs to be addressed as part of the negotiations. We will take part in the debate. The more that we get on to the big issues that are at stake, rather than focusing on the process details, the better informed the public will be.

[Andrew Percy (Brigg and Goole) (Con)]

2. What recent steps he has taken to rebalance the economy and create a northern powerhouse.

[David Morris (Morecambe and Lunesdale) (Con)]

4. What recent steps he has taken to rebalance the economy and create a northern powerhouse.

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

We have a comprehensive plan to rebalance the economy and create a northern powerhouse by bringing together the great cities and counties of the north of England, alongside plans to support other vital economies in our country, such as the south-west. Those plans involve major investment in transport infrastructure, backing science and skills, and supporting local businesses. The centrepiece of the northern powerhouse is the commitment to a major transfer of power to our great cities and counties so that local people can take more control of the decisions that affect them.

[Andrew Percy]

My hon. Friend the Member for Cleethorpes (Martin Vickers) and I were delighted in the previous Parliament that the Humber was at the centre of the northern powerhouse. Will the Chancellor confirm that the East Riding of Yorkshire and north Lincolnshire will continue to enjoy that position? I have a specific local issue in mind. Will he continue to prioritise flood defence funding for our region, because it is important for encouraging investment into the Humber?

[Mr Osborne]

I can confirm to my hon. Friend that the Humber, the East Riding and northern Lincolnshire are a central part of the northern powerhouse. When we originally set out the vision of the northern powerhouse last year, we talked about the belt stretching all the way from Merseyside across to the Humber. I know about his passionate commitment to improving the flood defences in the Humber. He achieved marked success last year, but has an even more ambitious project in mind. As he knows, because of his work and that of my hon. Friend the Member for Cleethorpes (Martin Vickers), the Environment Agency is undertaking a study of that proposal.

[Oliver Colvile]

May I congratulate my right hon. Friend for turning the north into a powerhouse, but what plans does he have to ensure that Plymouth and the south-west—

[David Morris]

In my constituency, a link road was 60 years overdue. The Prime Minister and the Chancellor came, and the Prime Minister put a series of bolts into the bridge there. Does my right hon. Friend the Chancellor agree that the road is vital to the improvement of my constituency, and that such projects should be rolled out across the area to ensure more vitality in the northern powerhouse?

[Mr Osborne]

My hon. Friend the Member for Plymouth, Sutton and Devonport (Oliver Colvile) is a huge champion of Plymouth and the south-west. We will have time to address the south-west in questions.

The Heysham link road is a major achievement for my hon. Friend the Member for Morecambe and Lunesdale (David Morris). People have campaigned for it for 70 years. I happened to visit about a week before the general election with the Prime Minister. Because of my hon. Friend’s fight for infrastructure and jobs in his seat, he is back in the House doing his job.

[Helen Jones (Warrington North) (Lab)]

22. Despite the Chancellor’s talk of a northern powerhouse, will he admit that output per hour in the north-west is still lower than the average for England, and lower than it was in 2007? Is it not true that his plan to improve the economy of the north-west has drastically failed that region?

[Mr Osborne]

The north-west has seen a huge increase in employment—it has had the fastest rate of employment growth in the entire United Kingdom. I would have thought the hon. Lady would welcome that.

The northern powerhouse initiative was instigated by me and the Labour and Conservative council leaders of Greater Manchester. It has been done on a cross-party basis. I would like to think that, at the beginning of this Parliament, we can work across the party divide, including in this Chamber, to bring about that major rebalancing of the British economy, which has eluded Governments for many generations.

[Anna Turley (Redcar) (Lab/Co-op)]

Major employers in the north-east such as Nissan and Hitachi, which are the key drivers of the northern powerhouse, are clear that membership of the EU is vital to their investment in our region, and that they would reconsider their involvement in the UK should we leave the EU. Given that the Under-Secretary of State for Communities and Local Government, the hon. Member for Stockton South (James Wharton), the Minister responsible for the northern powerhouse—I cannot see him in the Chamber—told the “Sunday Politics” show last weekend that he would vote to come out, will the Chancellor tell the House what assessment he has made of the impact of the EU on the north-east economy and his northern powerhouse plans?

[Mr Osborne]

I commend the work that Nissan and other employers do in the north-east. The north-east is currently producing more cars than the whole of Italy, which is a remarkable achievement and a tribute to the workforce there. I am glad the hon. Lady mentions the Under-Secretary of State for Communities and Local Government. He was not only returned with an increased majority, but is now playing a central role as the Minister helping to deliver the northern powerhouse in DCLG. The debates are about the future of our relationship with the European Union and the reform we need so that major Japanese car manufacturers continue to see Europe and the UK as a place to come, create jobs and invest. We will not do that if our continent prices itself out of the world economy.

[Greg Mulholland (Leeds North West) (LD)]

I am proud that the coalition Government sought to start the rebalancing of the British economy and introduced the northern powerhouse scheme, which I support. It seems clear that we will have to have a mayor in the Leeds city region. Will the right hon. Gentleman seriously consider the possibility of having a Yorkshire-wide mayor to rejoin together that wonderful county, which could be a real powerhouse for the whole of this nation?

[Mr Speaker]

Order. We have got the gist of it.

[Mr Osborne]

I am not trying to impose a model on any particular area. It is up to local metro areas to come forward with their proposals. I am clear that if we are to see a massive transfer of power from national Government to local government, there has to be a single point of accountability: someone who carries the can and drives the process forward. The authorities of Greater Manchester have agreed with me that that should be an elected mayor, but, as I say, how the authorities of West Yorkshire, and indeed the whole of Yorkshire, want to proceed is up to them. My door is open to a conversation.

[James Davies (Vale of Clwyd) (Con)]

20. I was grateful to the Under-Secretary of State for Transport, my hon. Friend the Member for Devizes (Claire Perry), for meeting me recently to discuss the upgrading of the north Wales main line. Will the Department study the wider economic case for such an upgrade to allow north Wales to link to the proposed HS2 hub at Crewe, and, importantly, to tap into the jobs and prosperity that the northern powerhouse will bring?

[Mr Osborne]

I welcome my hon. Friend to this House, fighting for the interests of north Wales. He is absolutely right that north Wales is a central part of the northern powerhouse. Of course it is a single economic area, a point made in the lead question. I will take a close look at the rail upgrades he is calling for. It is good to see him championing his constituency so soon after being sent to this place.

[Alison McGovern (Wirral South) (Lab)]

In the north, we know there can be no power without resources. Will the Chancellor be truthful with northern authorities and tell us how much more he is about to cut them by in this financial year?

[Mr Osborne]

I welcome the hon. Lady to her new position on the shadow Treasury team. Of course we have to make difficult decisions to balance our budget. If we do not get our public finances in order there will not be any powerhouse in any part of the country, and that is what we are doing. It is disappointing that the Labour party, having worked out that it did not have any economic credibility, has started the new Parliament by opposing all the savings we make. As it happens, in the in-year savings I announced we have protected the local government settlement.

[Craig Mackinlay (South Thanet) (Con)]

5. What recent progress he has made in reducing the deficit.

--- Later in debate ---

[Mike Weir (Angus) (SNP)]

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

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

The core purpose of the Treasury is to ensure the stability and prosperity of the economy. I can report to the House that the latest inflation figures show that consumer prices index inflation is at 0.1%, which is good news for working families. Inflation is close to an all-time low, and wages are growing strongly, which is further proof that our long-term economic plan is working.

[Mike Weir]

I thank the Chancellor for that response. However, one of his responsibilities is to ensure that the correct tax is paid. Given that there is huge public support for a Bill to tackle tax dodging, will he introduce such a measure in this Parliament to deal with the tax avoidance by UK companies both in the UK and in developing countries?

[Mr Osborne]

Every single Finance Bill we have introduced has been about tackling tax evasion and tax avoidance. Indeed we have also introduced into this country the diverted profits tax—almost a first in the world—which is tackling those international businesses that move their profits offshore to avoid tax. I can tell the hon. Gentleman that in the Budget we will take further action to clamp down on avoidance and evasion.

[Glyn Davies (Montgomeryshire) (Con)]

T2. Last week, the Chancellor announced a simple new rule to ensure that we run a surplus in normal times. Does he agree that the Opposition’s description of this as no more than a “distraction” proves that no lessons have been learned and that they would make exactly the same mistakes if they were ever given the opportunity again?

[Mr Osborne]

rose—

[Mr Speaker]

Order. I am sure that the hon. Gentleman, who is a seasoned hand, was asking a question about the Government’s intentions. I am sure that he was not asking about Opposition policy, and that the Chancellor will not answer about Opposition policy.

[Mr Osborne]

Of course. Perish the thought, Mr Speaker. The Government will introduce their new approach to fiscal policy in the Budget. It will include a commitment to a surplus in normal times, and we look forward to wide cross-party support for that approach.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Tomorrow the House of Commons will debate productivity, probably the central challenge facing our economic recovery. Will the Chancellor of the Exchequer be leading for the Government in response to that debate?

[Mr Osborne]

No, I will not.

[Chris Leslie]

The Chancellor clearly feels that productivity is not a priority of his. I am surprised that he will not be responding on this central question. After all, he will be here, as he will be acting as Prime Minister in Prime Minister’s questions tomorrow. If I can bring him back to the economy and he could rein in his personal ambitions for a moment, will the Chancellor set out where productivity features in his ambitions? While we have got the Chancellor here today—he is obviously not bothered about the debate tomorrow—will he explain why he failed to mention productivity in his March Budget speech just three months ago?

[Mr Osborne]

Well, I never thought I would say, “Bring back Ed Balls.” The Labour party needs to look at the productivity of its own Front Bench after those two dismal questions. I spoke in the Mansion House about the importance of raising the productivity of the United Kingdom. It is a challenge that has existed for many decades, as the hon. Gentleman knows. We will bring forward further proposals in the Budget to tackle the productivity gap in skills and infrastructure and the regional imbalance of our economy. Perhaps the Labour party could find some credible economic spokesman to take part in the debate.

[Caroline Nokes (Romsey and Southampton North) (Con)]

T5. Pensioners in Romsey and Southampton North have welcomed their new freedoms over their pensions. What evidence does my right hon. Friend have that they are taking advantage of those new freedoms?

[Mr Osborne]

Conservative Members believe that we should trust people who have worked hard and saved hard with those savings in retirement. These unprecedented pension freedoms have been widely welcomed. I can give the House the latest numbers—indeed, the first numbers—on how many people have taken advantage of the freedoms. So far, in the few weeks since they came into effect, 60,000 people have made use of them. More than £1 billion has been transferred out of people’s pension funds as a result. It is a sign that this is a real success, but we have to make sure that people get the best advice, that the market responds and that companies up their game in helping customers make use of these freedoms. We will be watching these things very carefully.

[Mr David Crausby (Bolton North East) (Lab)]

T3. Given that the population of Greater Manchester is bigger than those of both Wales and Northern Ireland and not far short of the population of Scotland, why are the people of Greater Manchester being denied the opportunity to decide whether they want a directly elected mayor? What is wrong with a constitutional referendum in England for a change?

[Mr Osborne]

I am sorry to hear that the hon. Gentleman disagrees with the Labour civic leadership across the authorities of Greater Manchester. They are elected, of course, and the elected national Government put together this deal. It will increase accountability in Greater Manchester because there will be an elected mayor whom people can hold directly to account.

[Mike Wood (Dudley South) (Con)]

T6. The latest Office for National Statistics figures show that disposable household income was rising more quickly in the west midlands than anywhere else in the country. Will the Chancellor consider creating further local enterprise zones such as Waterfront Business Park in Dudley South to help create further local growth, opportunities and prosperity for my constituents?

[Mr Osborne]

I welcome my hon. Friend to the House. I know that he will be a strong voice for Dudley. We are looking at smaller enterprise zones that are better fitted to areas such as his, to build on the success that we have had with the bigger enterprise zones. Enterprise zones for individual towns will help the west midlands and the black country to be an engine of growth for the British economy.

[Richard Burgon (Leeds East) (Lab)]

T4. Is the Chancellor aware of the letter in The Guardian on Friday from 80 senior economists, in which they say—these are their words—that his plans are “risky experiments with the economy to score political points…have no basis in economics”and“are not fit for the complexity of a modern 21st-century economy”?Does this not show that the Chancellor’s extreme cuts agenda is out on a limb and that his ideological fixations are outside the economic mainstream?

[Mr Osborne]

I do not read The Guardian every single day but I was made aware of that letter. I disagree. The same sort of people were saying the same things five years ago and now we have one of the fastest-growing economies of any major economy in the world. This is not the first thing on which I disagree with the hon. Gentleman. This morning he called for the abolition of the monarchy, so he is making an interesting start to his political career.

[Mr John Baron (Basildon and Billericay) (Con)]

As the economy continues to recover and the deficit falls, will the Chancellor consider increasing funding to the Foreign and Commonwealth Office, given that continual cuts under successive Governments have reduced its capacity and its skill base to such an extent that many people are saying that that has hindered our recent foreign policy decisions?

[Mr Osborne]

I know that my hon. Friend takes a close interest in the issue; indeed, he has been in contact with me about it. We absolutely want to make sure that Britain’s diplomatic reach is as wide as possible across the world, and we should commend my former colleague William Hague who, during his period as Foreign Secretary, despite the Foreign Office playing its part in delivering value for money and getting the best deal for taxpayers, was able to open more embassies and consulates around the world and increase Britain’s footprint on the global stage.

[Graham Jones (Hyndburn) (Lab)]

T8. The Chancellor’s Government keep talking about the Tory fantasy of a northern powerhouse, which never mentions Lancashire. Is it still his Government’s policy on the Treasury revenues from fracking that 1% will go to Lancashire and more than 60% will go to Whitehall?

[Mr Osborne]

I gave the original speech on the northern powerhouse in Lancashire, if we count Manchester as being in the traditional county—[Interruption.]

[Mr Speaker]

Order. Mr Jones, it is unseemly. I thought you were on an apprenticeship to become a statesman, but it has a long way to travel. It is courteous to hear the Chancellor. Let us hear him.

[Mr Osborne]

I think it will be one of those four-year apprenticeships, at this rate. I will say to the hon. Gentleman something which I know is not universally agreed with: I think the potential for shale gas in the north of England is a massive boost to the local economy there. I know it is not always popular with some local communities. That is why we have made sure that the benefits go to local communities, and we committed in our manifesto to creating a sovereign wealth fund for the north of England from the revenues from shale gas exploration so that we get a lasting benefit to the natural resources of that part of our country.

[Several hon. Members]

rose—

[Michael Fabricant (Lichfield) (Con)]

My right hon. Friend has been enthusiastic and proactive in promoting the northern powerhouse, but will he shift his gaze southwards towards the midlands? I suggest to him that the midlands has the productivity that the United Kingdom needs, and the midlands engine needs promotion too.

[Mr Osborne]

I agree. That is why I was recently in both Derby and Birmingham after the election stressing that there is a massive potential for the midlands to be this engine of growth, and I am sure Lichfield will be a key part of that engine.

[Wes Streeting (Ilford North) (Lab)]

T9. I am sure the Chancellor agrees that pro-business parties are pro-European parties, so when will he come off the fence and confirm that he will be leading the charge for Britain to stay in Europe?

[Mr Osborne]

What we are fighting for is Britain to be part of a reformed European Union. Now that we have finally persuaded the Labour party to come to its senses and support the referendum, we can get on with the business of negotiating a good deal for this country.

[Richard Fuller (Bedford) (Con)]

May we have a Treasury review into how effectively the balance sheets of housing associations are meeting the challenge of building new housing, looking in particular at their average cost of capital, the amount of leverage and whether a change in accounting policy would help to meet the housing challenge?

[Mr Osborne]

I congratulate my hon. Friend on his re-election; I enjoyed visiting him in Bedford just before the election. He raises an interesting point about how efficient housing associations are in increasing the housing supply, which is what we want them to do, and we are certainly looking at that at the moment.

[Mr Jim Cunningham (Coventry South) (Lab)]

T10. Given that the Chancellor wants to create the west midlands powerhouse, what is he doing to protect the powers and identity of local authorities such as Coventry?

[Mr Osborne]

I met local authority leaders from Coventry, Birmingham and the surrounding local authorities only a couple of weeks ago, and I made it clear that it is up to them to come together in a combination that suits them and reflects local identities, and that my door is open for any discussions they want to have.

[Martin Vickers (Cleethorpes) (Con)]

Further to my right hon. Friend’s reply to our hon. Friend the Member for Brigg and Goole (Andrew Percy), both my hon. Friend and I are big supporters of further devolution to northern Lincolnshire so that the economy can expand at an even faster rate. Can the Chancellor assure me that he will support any proposals that come forward from the leadership of our local authorities?

[Mr Osborne]

I can absolutely give my hon. Friend that assurance. Because of his campaigning, and that of our hon. Friend the Member for Brigg and Goole (Andrew Percy), we have made sure that northern Lincolnshire is part of the northern powerhouse concept and that it is not left behind or neglected, as it was under the Labour Government.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

The last Chancellor to run a budget surplus was Gordon Brown, thanks to a sell-off of gold at a rock-bottom price. Now this Government are pursuing a budget surplus by selling off RBS at a loss. When are we likely to see a banking strategy, rather than a costly political gimmick?

[Mr Osborne]

I never thought that I would hear the Member for Kirkcaldy and Cowdenbeath admit that the gold was sold off at the wrong price—I welcome the hon. Gentleman to the House. With the Royal Bank of Scotland we have a serious decision to make: do we continue to believe that at some point we might get back the money that the previous Labour Government put in, or do we take the advice of the independent reports that have been commissioned, and of the Governor of the Bank of England, which is that now is the right time to start selling RBS, and indeed that that might stimulate a higher share price? Above all, it will help to support the British banking system. We have had countless questions in this House about the impact on small businesses of what went wrong at RBS. I think that as soon as we can get that business back into the private sector, the more we can support the general economy, and indeed give a great future for the RBS work force.

[Richard Graham (Gloucester) (Con)]

The Government’s support for more, better and higher apprenticeships has been critical to the halving of youth unemployment in Gloucester over the past year. The other side of the equation is making sure that work always pays, and many of us want to play a part in ensuring that that happens. Universal credit is the key. It will come to Gloucester later this summer. What does my right hon. Friend think will be the tangible and intangible benefits of seeing people able to work longer than 16 hours, increase their income and reduce welfare benefits?

[Mr Osborne]

My hon. Friend is absolutely right that universal credit, the major reform of our welfare system that will be widely felt in this Parliament, will create a very simple system in which people know that if they work that extra hour, they will be rewarded for it. That simplicity, and the fact that people can keep more of their income by working that extra hour, will be a powerful incentive that makes work pay.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr Osborne]

The hon. Gentleman raises a serious question that I suspect this House will have to return to on a number of occasions. We have a clear agreement in the Stormont House agreement that we now expect all parties in Northern Ireland to implement, including Sinn Féin. Frankly, it is not acceptable for any devolved Administration simply to breach the spending limits that have been agreed with the United Kingdom Government, so that is something we will have to address. As he knows, the key is to implement welfare reforms that will not only deliver value for money for the taxpayer, but ensure that more people in Northern Ireland are released from the poverty trap and are able to work.

[Stephen Hammond (Wimbledon) (Con)]

Yesterday, borrowing costs across Europe increased as the contagion from the Greek economic crisis spread. May I congratulate the Chancellor on the long-term economic plan, which, in contrast, has brought jobs and growth to the UK economy? May I also urge him to use the Budget to reduce the deficit by increasing resources for infrastructure, such as the £250 million needed for Crossrail 2, which will bring even more jobs to my constituency and to the UK?

[Mr Osborne]

My hon. Friend is right to remind the House after an hour and five minutes of Treasury questions that out in the real world there are some serious economic risks, not least the risk that we see growing in Greece of a potential default and exit from the euro. People should not underestimate the damage that that would do to financial confidence. Of course, in the UK we take all steps to prepare for and protect ourselves from such eventualities, but the best thing that a Government can do is to ensure that it is living within its means, that it has a productive economy and that its public finances are in good order. That is what we are going to deliver in this Parliament.

[Several hon. Members]

rose—

The Economy

George Osborne Excerpts

Thursday 4th June 2015 Commons Chamber

[The First Secretary of State and Chancellor of the Exchequer (Mr George Osborne)]

I rise on the last day of the Queen’s Speech debate to support a programme for government that stands full square behind the working people of this country. It unashamedly backs the aspiration of working people to own their own home. It unflinchingly supports the businesses, especially the small firms, that provide the jobs that working people depend on. It unfailingly stands on the side of parents who want what every parent wants for their child: good education in a great school. It understands that the best way to support the incomes of working people is to let them keep more of their income tax-free. Our programme for government is unwavering in its determination to deliver sound public finances and the economic security that they bring for working people, because without that security nothing else is possible. We were elected as a party for the working people, and we will govern as a Government for the working people.

[Several hon. Members]

rose—

[Mr Osborne]

I will give way in a moment, but let me first make some progress.

Of course, this is the day we vote on the Queen’s Speech, deciding whether the legislative programme it proposes should proceed into law. We were told four weeks ago by the pollsters and pundits that this day would be one of great constitutional drama. Would the party leader who managed to cobble together enough votes in a hung Parliament manage to survive the test of the vote tonight? As always, we are taking nothing for granted, but I am reasonably confident that we will have the votes tonight, because what the pollsters and pundits did not reckon on was the good sense of the British people, who did not want to put at risk everything that has been achieved over the past five years and who want to continue with a long-term economic plan that is working for this country.

Let me say—I mean this sincerely—that it is very good to see the former leader of the Labour party here today. I think that he earns everyone’s respect by coming to the House so soon after the election defeat, and I understand that he wants to take part in the debate. Despite the fierce arguments of the general election, I do not think that anyone ever doubted his personal integrity or the conviction with which he made his arguments. It is good to see him back in the Chamber.

Let me also put on the record my thanks to the former Chief Secretary to the Treasury, the former Member for Inverness, Nairn, Badenoch and Strathspey, who lost his seat at the election, with whom I worked incredibly closely. He gave great public service to this country. Of course, that is not to say that I am sorry to have a Conservative Chief Secretary. It is fantastic to have my right hon. Friend the Member for Chelsea and Fulham (Greg Hands) in that role, along with the new members of the Treasury team.

The measures set out in the Queen’s Speech represent the next stages of our long-term economic plan, because we on the Government side of the House know that the job of repairing the British economy is not yet done, and that the work of preparing our country for the future has only just started.

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

Does support for hard-working people include sanctioning those who are in work but on low wages and in receipt of tax credits?

[Mr Osborne]

If the hon. Lady is talking about benefit sanctions, I think that it is perfectly reasonable to ask people who are capable of work to turn up to job interviews and to make sure that they are doing everything possible to look for work. We support them while they are doing that, but the taxpayers of this country expect them to search for work.

The economic situation at the beginning of this Parliament is vastly better than the one we inherited at the start of the last Parliament. Back then, debt was soaring; today, it is projected this year to fall as a share of our national income. Back then, millions were looking for work; today, 2 million new jobs have been created. Back then, we were in the grip of an economic crisis; this week, the latest forecast is that the UK will be the fastest growing of any of the G7 economies—not just in 2014, but now in 2015 as well. That we have come so far in five years is a testament to the effort of the working people of Britain.

[Clive Efford (Eltham) (Lab)]

One of the myths that the Conservatives have been very successful with—I credit them for it—is the suggestion that debt soared under the last Labour Government from 1997 onwards. However, according to the House of Commons Library, debt in 1997 was higher than it was in 2007-08, just before the banking crisis hit. Yes or no?

[Mr Osborne]

The idea that the last Labour Government did not leave the country with a debt crisis is laughable. The fact that the Labour party is starting this Parliament making the same argument that it made in the last one shows how much it needs to learn and listen.

[Clive Efford]

rose—

[Mr Osborne]

I am answering the hon. Gentleman’s intervention.

[Mr Speaker]

Order. We deal with these matters in an orderly and sequential manner. The Chancellor is seeking to respond to the intervention; the hon. Member for Eltham (Clive Efford) can always try his luck again in a moment. Ministers should not be hectored in these circumstances. Let the Chancellor reply first.

[Mr Osborne]

The point I make to the hon. Gentleman is that national debt started rising in the very first years of the beginning of this century—in 2001 and 2002. It rose through the boom years, when the Labour Government should have been paying down the debt and should not have been running a deficit. One of the things on which the various leaders of the Labour party all seem to agree at the moment is that the deficit was too high going into the crash.

[Clive Efford]

rose—

[Mr Osborne]

I do not know who the hon. Gentleman is going to vote for in the Labour leadership contest; the hon. Member for Islington North (Jeremy Corbyn) may be the one person still sticking with the line that he is pursuing.

[Clive Efford]

rose—

[Mr Osborne]

I think I have dealt with the hon. Gentleman’s point.

[Mark Garnier]

The subject of debt is incredibly important, but debt is not just national; there is household debt as well. Does the Chancellor agree that the £1 trillion rise in household debt between 1997 and 2008, taking it up to £1.47 trillion, was one of the most pernicious acts of the Labour Government? It damaged households immeasurably and is the biggest crisis that we have to deal with.

[Mr Osborne]

My hon. Friend is absolutely right. There was no institution looking at overall debt levels in our country.

[Clive Efford]

Make it up as you go along!

--- Later in debate ---

[Mr Speaker]

Whether the hon. Gentleman wanted to or not, I am happy to concede that he was not doing so.

[Mr Osborne]

I am not feeling particularly intimidated by the hon. Gentleman because he is spouting the same old anti-aspiration, anti-sound public finances nonsense that we have heard from the Opposition for the past five years.

Let me make progress and come to the central point. We have to tackle the endemic weaknesses in the British economy that no Government have been able to solve in the past: we are not productive enough and we do not export enough, save enough, train enough or build enough.

[Graham Evans]

rose—

[Mr Osborne]

Let me make a little progress before I give way to my hon. Friend. We do not see enough of the prosperity and opportunity produced by our economy shared across all parts of our United Kingdom. The Queen’s Speech addresses those weaknesses head on. The housing Bill will ensure that more new homes are built and that tenants of housing associations get the opportunity to buy their own homes.

[Clive Lewis (Norwich South) (Lab)]

A disgrace!

[Mr Osborne]

But it is anti-aspiration to deny working people in housing associations the right to buy their own homes. That will be an early, key test of whether the Labour party has learned anything from its massive election defeat.

The enterprise Bill supports the small businesses that are the productive engine of the modern economy. The High Speed 2 Bill commits us to the vital modern transport infrastructure that we need. The Childcare Bill supports the working parents—especially the working mothers—who have never had the backing that matches their contribution to our economy. The full employment and welfare Bill delivers the 3 million apprenticeships and creates the work incentives in our welfare system so that every citizen who can work is able to.

Yesterday, we discovered that the UK had climbed up the global employment league table, overtaking Canada to have the third highest employment rate of any of the major advanced economies in the world, on the path to full employment that we have set out. There is the promise of further devolution, delivered in the legislation, to Scotland, Wales and Northern Ireland. Then there is the Cities and Local Government Devolution Bill, which helps to dismantle the failed model that says that we have to run the entire country from the centre of London. Instead, it empowers our great cities across England and adds to the foundations of the northern powerhouse that we are building.

That is the agenda that we offer—full of ambition, brimming with ideas, not afraid of the future but excited about what it can bring. What of the alternative? The Labour party has taken the unusual approach of erecting the headstone first and then conducting the post-mortem. What conclusion has it reached? The shadow Chancellor just said that this is not the Queen’s Speech that he would have wanted. The Queen’s Speech that he does want is not entirely clear. He said that Labour’s economic policy was not credible; that its spending policy meant that it spent too much; that its tax policy was punitive and, in his word, “crude”; that its housing and rent policy was unworkable; that its energy policy meant higher energy bills; that its European policy was anti-democratic; and that its business policy was anti-business. Other than that, it was all okay!

[Chris Leslie]

rose—

[Mr Osborne]

I will give way, but I should properly welcome the hon. Gentleman, along with the rest of his shadow Treasury team. One of the great pleasures of doing this job has been the opportunity to work with four different shadow Chancellors. I wish the hon. Gentleman the same success as his predecessors enjoyed.

[Chris Leslie]

Very funny. I asked the Chancellor about an issue of substance—whether he is planning to cut the 45p rate of tax on earnings of £150,000. Is he able to rule that out as unfair and inappropriate?

[Mr Osborne]

There was a very good intervention which pointed out that there was a 40p rate for almost the entire period of Labour government. But let me say this. My tax priorities are clear: to raise the tax-free personal allowance to £12,500 and the higher rate threshold to £50,000. Those are my priorities and they will be reflected in the Budgets presented from this Dispatch Box.

The shadow Chancellor is a thoughtful man. Last weekend, he gave an interview to The Guardian, in which he tried to pinpoint what went wrong. This was his conclusion:

“It’s the Which? magazine strata of society that somehow we just didn’t understand”.

To be honest, I would stop worrying about Which? magazine and start focusing on which leader. There are four members of the Labour Treasury team. Three have backed different potential Labour leaders and the shadow Chancellor has led from the front by deciding that he is not going to back anyone at all. The truth is that it does not matter which of the leaders they pick—none of them understands the aspirations of working people because, in the devastating words of the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper), Labour has become the “anti-worker” party. That is what she said. That is a quote that I suspect we will hear again in this Chamber in the coming years.

[Bill Esterson (Sefton Central) (Lab)]

rose—

[Mr Osborne]

Does the hon. Gentleman agree that the Labour party is the anti-worker party?

[Bill Esterson]

The Chancellor has talked about his priorities. May I ask him about his priorities for the £12 billion of unfunded spending cuts? Will he confirm today what the Prime Minister refused to confirm yesterday? Will he be cutting benefits for people with disabilities—yes or no?

[Mr Osborne]

As the Prime Minister made very clear yesterday, we will follow the principles that we followed in the previous Parliament, when we protected the most vulnerable in our society and actually increased the amount we were able to give to the most disabled in our country. In every single intervention about economic policy today, in the different debates we have had since the Queen’s Speech, and at Prime Minister’s questions, Labour Members have demanded more public spending, complained about a public expenditure cut, or implied that there should be higher welfare bills. That is what we have heard about over the past few days—more spending and higher welfare bills that can be paid for only by more borrowing and higher taxes on the working people of this country. That would undermine the security that we have restored to our economy.

[Graham Evans]

rose—

[Mr Osborne]

I now give way to my hon. Friend and constituency neighbour.

[Graham Evans]

I wonder whether the Chancellor is aware that, as I speak, IBM is signing a multimillion-pound contract in my constituency of Weaver Vale on high-speed computing, in partnership with the Science and Technology Facilities Council at Sci-Tech Daresbury—the enterprise zone. Does he agree that this has happened only because of our long-term economic plan for reducing the deficit and cutting taxes, that the British people know that only the Conservatives are the party of business, and that the whole world knows that Britain is open for business?

[Mr Osborne]

Let me say how fantastic it is to see my hon. Friend back in his place, because he has fought so hard for his constituency in delivering the Mersey Gateway bridge, the rail improvements in his constituency, and, as he mentioned, the major investments in science at Daresbury, including in high-performance computing. Today’s announcement from IBM shows what happens if we get our science and technology policy right as a country—we attract investment from all over the world.

[Mr Sheerman]

Can I ask the Chancellor about—

[Mr Sheerman]

The right hon. Gentleman knows that I try to play fair in these things, but on his question about my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), I think a sense of humility is needed in this Chamber today. The Tory party has just got 30% of the popular vote; the Labour party got 31%. A hell of a lot of people in this country did not vote Conservative and did not vote Labour, and if we are not looking at why we do not enthuse the people, we are not doing our job.

[Mr Osborne]

I could not tell whether the hon. Gentleman agrees with the right hon. Member for Normanton, Pontefract and Castleford that the Labour party is the anti-worker party—but we will find out.

[Rebecca Pow (Taunton Deane) (Con)]

rose—

[Mr Osborne]

Actually, I would much rather give way to the new Member for Taunton.

[Rebecca Pow]

This Government are committed to infrastructure investment to benefit business. As my right hon. Friend said earlier, the Labour party, in its manifesto, was going to axe the upgrade of the A358, not realising that linked to that upgrade is the development of a new IT business park in Taunton on which depend many jobs and the future of our economy. The Conservative party understands that this is to benefit business; clearly the Labour party does not.

[Mr Osborne]

It is fantastic to see my hon. Friend here representing Taunton. She has already made an impact and made sure that the A358 is absolutely in the Government’s road programme. For all that we heard from the shadow Chancellor about investment and the like, the Labour party announced during the general election that it was cancelling the A358, and indeed the A20, which showed that it did not care about the south of England at all, or about investment in the south-west of England. That is pretty astonishing.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

The Chancellor will of course be aware that Scotland rejected the cuts agenda—the austerity cult that he is the high priest of—and we now have 56 out of 59 MPs. I see from the front page of today’s Financial Times that the OECD agrees with the SNP on spending and says that his cuts agenda is a danger to the economy of the UK. Will he take some economic lessons from the SNP and perhaps improve the performance of this Government?

[Mr Osborne]

If we had listened to the SNP there would be a massive hole in Scotland’s public finances because of the price of oil. We are obviously going to be hearing a lot more from SNP Members in this Parliament because of their numbers. If there are cuts that they oppose, let me point out that the Scottish National party in Holyrood has the power to increase taxes to increase spending. It has the power to increase income tax already and it is getting more powers next year to do so. When it comes to complaints about public expenditure, it is time for the SNP to put up or shut up.

Let me turn to economic security and public spending. Economic security is at the heart of everything. Without economic security, families cannot be supported, people cannot buy homes, businesses dare not invest, and jobs are not created. Without economic security, there are no aspirations, no opportunities, no hopes, and no ambitions. We cannot have economic security in a country that borrows too much and spends too much and does not live within its means. When confronted with the synthetic cries of Labour Members who claim to be standing up for the poorest in our country, let us also recognise this: the people who suffer most when Britain cannot pay its way, spends more than it can afford and sees security give way to instability are not the richest in this country but the poorest. When the economy fails, it is the poorest who lose their jobs and see their incomes cut and their dreams shattered. That is what we saw five years ago when there was no money left. For as long as Labour Members fail to understand that, they will remain the anti-worker party.

Economic security is at the heart of everything we offer, and it will be at the centre of the Budget I present to this House on 8 July. The budget deficit is less than half what it was, but at 4.8% it is still one of the highest in the world. Our national debt as a share of national income—

[Luke Hall (Thornbury and Yate) (Con)]

rose—

[Mr Osborne]

I will give way to my hon. Friend and then make some progress because I know that lots of people want to give their maiden speeches.

[Luke Hall]

In Thornbury and Yate unemployment has fallen by 59% since 2010. May I urge the Chancellor to stick to the long-term economic plan and ignore the siren calls from Labour Members?

[Mr Osborne]

I absolutely will do that. I remember my visit with my hon. Friend to his constituency to meet some of the small businesses on the high street who depend on the people in this House delivering economic security and stability for this country, and that is what we are determined to do.

The global economy is full of risks at present. We should be redoubling our efforts to prepare Britain for whatever the world throws at us in the coming years, not easing off. The time to fix the roof is when the sun is shining. So in the Budget and in the spending review that follows, we will take the necessary steps to eliminate the deficit and run the surplus required in good times to bring debt sustainably down. That is what we promised in the election, and it is what we aim to deliver in government. I am not going to pretend to the House that these will be easy decisions, but nor will I pretend to the public that we can avoid taking them—we cannot. We have a structural budget deficit—we spend more than we collect in taxes—and that is not going to be fixed by economic growth alone. We have to bring spending down so that our country lives within its means.

As with any challenge, the sooner you get on with it, the better, and that is what we do today. Over the past five years we have brought a culture of good housekeeping to Whitehall. In every year of the previous Parliament—

[Debbie Abrahams]

rose—

[Mr Osborne]

I will make a little progress, if the hon. Lady does not mind. As I say, lots of Members want to get in on this debate later.

In every year of the previous Parliament, Government Departments kept their spending not just within budget but well under budget. Outside key protected areas like the national health service, those budgets have been reduced year on year to more sustainable levels. At the start of this Parliament, it is important that we continue to control spending in the same vein. Two weeks ago, my right hon. Friend the new Chief Secretary asked Government Departments to seek further savings beyond the £13 billion of savings that they are already delivering this year. I can report today that together we have got straight back to the task in hand. We have found a further £4.5 billion of savings that we can make to the Government budget this year, including sensible asset sales. Some £3 billion of these extra savings come from finding more efficiency in Whitehall Departments and from the good housekeeping of coming in under budget. The breakdown per Department is being published by the Treasury today.

There is another component to this: I am today announcing that the Government will begin selling the remaining 30% shareholding we have in Royal Mail. It is the right thing to do for Royal Mail, for the businesses and families who depend on it, and, crucially, for the taxpayer. That business is now thriving after we gave it access to investment from the private sector in the last Parliament. There is no reason we should continue to hold a minority stake. That stake is worth about £1.5 billion at current market prices.

Of course, share prices fluctuate and the final value will depend on market conditions at the point of sale. We will sell our stake only when we can be sure that we are getting value for money, but let us be clear: holding over £1 billion of Royal Mail shares in public hands is not a sensible use of taxpayers’ money. By selling it, we help that important national business to prosper and invest in the future, while we use the money we get to pay down the national debt and pay less interest on that debt as a result. It is a double win for the taxpayer, for we on this side never forget that it is not our money or the Government’s money; it is the money that people work for and pay in taxes, and entrust to us to spend wisely.

[Chris Leslie]

I warned in my earlier remarks about the Chancellor’s hidden agenda. Before he went into the section on Royal Mail, I think I heard him announce upwards of £4.5 billion or more of in-year cuts to public services. [Hon. Members: “Savings!”] I think he called it “good housekeeping”. He announced in-year savings of that magnitude without coming to the House to give an oral statement or publishing them for the House, so that we can scrutinise what he has just announced. It sounds to me as though any semblance of a long-term plan has been totally ripped up, and that there is panic in the Treasury and chaos, with in-year public spending decisions being taken. Why did he not announce those in the March Budget if they were part of some sort of long-term continuum? Has he suddenly decided rapidly to change his course when it comes to public expenditure? And why do it in such a shabby way?

[Mr Osborne]

Only the Labour party would think it shabby to make an announcement first in the House of Commons.

[Chris Leslie]

rose—

[Mr Osborne]

The shadow Chancellor can sit down.

We set out two weeks ago that we were going to find further efficiencies and savings in Government, and that is what we deliver today.

[Chris Leslie]

On a point of order, Mr Speaker. It is the usual convention, if there are significant changes to the estimates and supply that support public services, that the documentation and details for every single Department are laid before the House of Commons, so that all Members can be informed of what is happening with our public services within a financial year. This is ripping up any semblance of long-term continuity, and it is a shabby way to treat Parliament and the public services.

[Mr Speaker]

The shadow Chancellor has spoken, but this is not a matter with which the Chair needs to deal. He has made his point and it is on the record, but the Chancellor will now continue.

[Mr Osborne]

We made this announcement to the House of Commons, and the detail is there for people to examine. There will be estimates debates as usual, but there is a very simple question: does the Labour party support further savings in public expenditure? If it does not, that means the Labour party wants to increase borrowing, increase taxes and take this country back to square one and repeat all the mistakes it carried out in office—and, indeed, repeat all the political mistakes that meant it went down to a historic election defeat just a month ago.

[Chris Leslie]

rose—

[Mr Osborne]

I have given way to the hon. Gentleman. He will have his opportunity.

Further savings in Departments this year, selling our stake in Royal Mail, getting on with what we promised, and reducing the deficit—that is how to deliver lasting economic security for working people, for as everyone knows, when it comes to living within your means, the sooner you start, the smoother the ride.

We continue today to deliver on our long-term economic plan. The measures in this Queen’s Speech back aspiration and opportunity, but they rest on the bedrock of economic security that our plan has delivered and continues to deliver. We have taken further steps today to prioritise that economic security. It is the security that the working people of this country elected this Government to provide, and I commend the Queen’s Speech to the House.

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to propose the amendment in my name and those of my right hon. and hon. Friends. It is also a great pleasure to follow the right hon. and learned Member for Rushcliffe (Mr Clarke). He talked earlier in his contribution about the bizarre events in Scotland. We tend to call it democracy. In the same way as the Chancellor spoke about the good sense of the British people, I might say that, with 56 out of 59 MPs and half the vote, we celebrate very much the good sense of the Scottish people—a true one nation in every sense.

The Chancellor spoke about the challenges the Scottish economy may face. He spoke about fiscal autonomy and what he called a massive hole. I just say gently to him that any challenges on the Scottish current account are as nothing compared with a £1.6 trillion UK national debt built up by Labour and Tory alike.

The Chancellor laid out his plans today. For our part, the last thing that the country needs, that the economy can afford and that those who have suffered most over the past five years should be expected to bear is another austerity Government. Yet that is exactly the direction of travel laid out today: a continuation of vague talk about a long-term economic plan, where none really exists; hubris about so-called economic success, most of which is contradicted by fact and a litany of broken promises; and a complete disregard of the impact his policies have had, are having and will have over the next five years on people through the UK—and that is before we even start to talk about the impact on investment for growth and on our vital public services.

We know the impact those policies have had throughout the UK. We know what has happened in Scotland specifically since 2010. We have seen the budget cut by about 11% in real terms and capital expenditure down by 34%. As a result of decisions taken by this Chancellor, the budget in Scotland has been cut by a staggering £3.5 billion in real terms. The plans announced throughout the election and reiterated today—before the bombshell of in-year cuts, which we will analyse further later—will result in a cumulative share of cuts to day-to-day spending over the next five years for Scotland worth about £12 billion at today’s levels. Those cuts to Scotland and elsewhere are the consequence of the Chancellor’s economic failure.

It is worth reminding ourselves what the Chancellor said when he took office: debt would begin to fall as a share of GDP by last year; the current account should be in balance this year; and public sector net borrowing would fall to £20 billion in the same year. Debt did not fall as a share of GDP in 2014-15, the current account will not be back in the black until 2017-18, and public sector net borrowing—the Chancellor can smirk all he likes—was not the barely £20 billion he promised: it was almost four times that at £75 billion. The Chancellor failed to meet every one of the key targets he set himself. Tory policy stifled recovery from 2010 for years into the previous Parliament. With a cumulative £146 billion of cuts still to come, we are all on track for a decade of austerity.

We know where the pain of this has been felt and we know where the pain of it will be felt. In Scotland, 145,000 households affected by changes to incapacity benefit will lose about £2,000 each.

[Mr Osborne]

If the hon. Gentleman, who speaks for the Scottish nationalists, opposes these spending cuts, why does he not increase taxes and use the powers available to the Scottish Government? He could then spend more money.

[Stewart Hosie]

We do not need to increase taxes in the way the Chancellor describes. He knows perfectly well, and I will come on to it shortly, that there is a way of managing the economy in a fiscally responsible way that allows an increase in spending while the debt and the deficit continue to fall. He may disagree with me—I respect that—but he had better respect that this is a genuine alternative vision to the cuts coming from his party.

The pain will be felt by the 145,000 households affected by changes to incapacity benefit, the 370,000 who have seen tax credits reduced, and the 620,000 families hit by child benefit freezes. It will be felt by the 120,000 people who have lost an average of £2,600 as disability living allowance was removed. I am glad the Secretary of State for Work and Pensions is here to hear this. He can perhaps begin to understand that this is not a theoretical cut in a back office, but a real cut to real people’s living standards throughout the UK. It will be felt by the 835,000 households hit by the increase in the benefit cap. Why are these decisions wrong? There is now a substantial growing body of opinion, as the right hon. Member for Doncaster North (Edward Miliband) said, that we do not simply need a growing economy to fund our welfare provision; we need to squeeze inequality out of the system to provide a solid platform to grow the economy.

ECOFIN

George Osborne Excerpts

Tuesday 24th March 2015 Written Statements

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

A meeting of the Economic and Financial Affairs Council was held in Brussels on 10 March 2015. Ministers discussed the following items:

Investment plan for Europe

The Council agreed a general approach on the proposal on the European Fund for Strategic Investments (EFSI). This will allow the presidency, on behalf of the Council, to start negotiations with the European Parliament.

Current legislative proposals

The presidency updated delegations on the state of play of legislative proposals in the field of financial services.

Implementation of the banking union

The Commission informed delegations on the state of play on banking union implementation, providing updates on the bank recovery and resolution directive (BRRD) implementation and the ratification of the intergovernmental agreement (IGA) on the single resolution fund (SRF).

European semester: Country reports

The Commission presented the 27 “Country Reports” published in February.

Implementation of the stability and growth pact

The Commission set out the main conclusions of the country report and in depth review exercise as they related to the stability and growth pact (SGP). The Council adopted, through a vote by Eurozone member states, a recommendation under the excessive deficit procedure (EDP) for France to correct its deficit by 2017.

Other business

ECOFIN had a short exchange of views regarding the fight against tax avoidance, in relation to the presidency “Road Map” on fighting base erosion and profit shifting.

[HCWS466]

Amendment of the Law

George Osborne Excerpts

Thursday 19th March 2015 Commons Chamber

[Ed Balls]

We know from the autumn statement that the OBR confirmed that the scale of these spending cuts was agreed by the Prime Minister, the Chancellor, the Deputy Prime Minister and the Chief Secretary, and the same thing is clear about this Budget document. The OBR says:

“This profile is driven by a medium-term fiscal assumption that the Treasury has confirmed ‘represents the Government’s agreed position for Budget 2015’ and that was ‘discussed by the Quad and agreed by both parties in the Coalition.’”

The Liberal Democrats now come along and say that they were not really in favour of the bedroom tax, and not really in favour of these fiscal plans, but we know the truth. That is why we need a fairer and more balanced approach.

We will have sensible spending cuts in non-protected areas. We will cut winter fuel payments for the richest 5% of pensioners. We will cap child benefit at 1% for two years. The shadow Chief Secretary has been setting out in our zero-based review of every pound spent by Government cuts from rooting out waste and inefficiency in policing, in local government, in defence, and in schools. We are going to get rid of the police and crime commissioner elections. We are going to get rid of the free schools. We are going to stop the overpayment of housing benefit. We are going to deal with the issue of—[Interruption.] I meant new free schools. The shadow Chief Secretary has set out ways in which we can make those sensible cuts in non-protected areas.

We will also make fairer choices. We will reverse—[Interruption.] If the Chancellor wants to intervene, I will happily give way.

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

No, carry on.

Financial Statement

George Osborne Excerpts

Wednesday 18th March 2015 Commons Chamber

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

Today I report on a Britain that is growing, creating jobs and paying its way. We made difficult decisions in the teeth of opposition, and it worked: Britain is walking tall again.

Five years ago, our economy had suffered a collapse greater than that suffered by almost any other country. Today I can confirm that in the last year we have grown faster than any other major advanced economy in the world. Five years ago, millions of people could not find work. Today I can report that more people have jobs in Britain than ever before. Five years ago, living standards were set back years by the great recession. Today the latest projections show that living standards will be higher than they were when we came to office. Five years ago, the deficit was out of control. Today, as a share of national income, it is down by more than a half. Five years ago, they were bailing out the banks. Today I can tell the House that we are selling more bank shares and getting taxpayers’ money back. We set out a plan, that plan is working, and Britain is walking tall again.

So the critical choice facing the country now is this: do we return to the chaos of the past or do we say to the British people, “Let’s go on working through the plan that is delivering for you”? Today we make that critical choice: we choose the future. We choose, as the central judgment of this Budget, to use whatever additional resources we have to get the deficit and the debt falling. No unfunded spending, no irresponsible extra borrowing; for no short-term give-away can ever begin to help people as much as the long-term benefits of a recovering national economy. In the emergency Budget I presented to this House five years ago, I said we would turn Britain around, and in this last Budget of the Parliament, we will not waver from that task, because we choose the future.

Our goal is for Britain to become the most prosperous major economy in the world, with that prosperity widely shared. So we choose economic security. This Budget commits us to the difficult decisions to eliminate our deficit and get our national debt share falling. We choose jobs. This Budget does more to back business and make work pay, so we create full employment. We choose the whole nation. This Budget makes new investments in manufacturing and science and the northern powerhouse for a truly national recovery. We choose responsibility. This Budget takes further action to support savers and pensioners. We choose aspiration. This Budget backs the self-employed, the small business owner and the home buyer. We choose families. This Budget helps hard-working people keep more of the money they have earned. This is a Budget that takes Britain one more big step on the road from austerity to prosperity. We have a plan that is working, and this Budget works for you. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I am struggling to hear what the Chancellor of the Exchequer is saying. I am sure that all Members in the House want to hear the Chancellor; but, more importantly, so do our constituents.

[Mr Osborne]

The British economy is fundamentally stronger than it was five years ago, and that is reflected in the latest forecasts from the Office for Budget Responsibility. It seems remarkable that until this Government came to office, our national forecasts were manipulated by Chancellors, to be fiddled and fixed in pre-election Budgets. Today they are produced with independence and integrity by Robert Chote and his team, and I want to thank them for their work. The OBR confirms today that, at 2.6%, Britain grew faster than any other major advanced economy in the world last year. That is 50% faster than Germany, three times faster than the eurozone and seven times faster than France. There are some who advise us to abandon our plan and pursue the French approach. I prefer to follow the advice of the secretary-general of the OECD, which he gave to us all last month. He said:

“Britain has a long term economic plan”

and

“it needs to stick with it.”

“A long-term economic plan”—now there’s someone with a way with words. We need to stick with that plan, at a time when global economic risks are rising.

The biggest development since the autumn statement has been the further sharp fall in the world oil price. This is positive news for the global economy, but the overall boost this provides has not yet offset the rising geopolitical uncertainty it causes, and the eurozone continues to stagnate. So at this Budget, the OBR has once again revised down the growth of the world economy, revised down the growth of world trade and revised down the prospects for the eurozone. It warns us that the current stand-off with Greece could be very damaging to the British economy. I agree with that assessment. A disorderly Greek exit from the euro remains the greatest threat to Europe’s economic stability. It would be a serious mistake to underestimate its impact on the UK, and we urge our Eurozone colleagues to resolve this growing crisis.

The problems in Europe remind us why Britain needs to expand our links with the faster growing parts of the world. We have made major progress in this Parliament. I can report that the trade deficit figures published last week are the best for 15 years, and we will do even more, so today I am again increasing UK Trade & Investment’s resources to double the support for British exporters to China. We have also decided to become the first major western nation to become a prospective founding member of the new Asian Infrastructure Investment Bank, because we think we should be present at the creation of these new international institutions.

Mr Deputy Speaker, you would expect weaker world growth, weaker world trade and weaker European growth to lead to weaker growth here in the UK. However, the OBR has not revised down Britain’s economic forecasts; it has revised them up. A year ago, it forecast growth in 2015 at 2.3%. In the autumn statement, that was revised up to 2.4%. Today I can confirm that GDP growth this year is forecast to be higher still, at 2.5%. It is also revised up next year, to 2.3%. That is where it remains for the following two years, before reaching 2.4% in 2019.

The OBR reports growth revised up, and its numbers confirm that growth is broadly based, for we are replacing the disastrous economic model we inherited. Between 1997 and 2010, investment accounted for less than one fifth of Britain’s economic growth—four fifths came from debt-fuelled household consumption. Meanwhile, manufacturing halved as a share of our national economy, and the gap between the north and the south grew ever larger.

I can report that since 2010 business investment has grown four times faster than household consumption; Britain’s manufacturing output has grown more than four and a half times faster than it did in the entire decade before the crisis; and over the last year, the north grew faster than the south. We are seeing a truly national recovery.

Let me turn now to the rest of the forecasts. This morning we saw the latest job numbers. It is a massive moment. Britain has the highest rate of employment in its history—a record number of people in work and more women in work than ever before—and the claimant count rate is at its lowest since 1975. For years, Governments have talked about full employment. This Government are moving towards achieving it.

Unemployment today has fallen by another 100,000, and compared with the autumn statement, the OBR now expects unemployment this year to be even lower. It is set to fall to 5.3%, down almost a whole three percentage points from the rate we inherited from the last Government. When we set out our plan, the Leader of the Opposition predicted that a million jobs would be lost. Instead, over 1.9 million new jobs have been gained, because our long-term plan is based on the premise that if we provide economic stability, if we reform welfare and make work pay, and if we back business, then we will create jobs too. Today’s figures show that under this Government 1,000 more jobs have been created every single day. The evidence is plain to see: Britain is working again.

What about all those who say, “The jobs aren’t real jobs; they’re all part-time; they’re all in London”? Nonsense. How many of the jobs are full time? Eighty per cent. How many of the jobs are in skilled occupations? Eighty per cent. Where is employment growing fastest? In the north-west of England. Where is a job being created every 10 minutes? In the midlands. Which county has created more jobs than the whole of France? The great county of Yorkshire. We are getting the whole of Britain back to work with a truly national recovery.

It is only by growing our economy, dealing with our debts and creating jobs that we can raise living standards. To the question whether people are better off at the end of this Parliament than they were five years ago, we can give the resounding answer yes. We can measure it by GDP per capita, and the answer is, yes, it is up by 5%. Or we can use the most up-to-date and comprehensive measure of living standards, which is real household disposable income per capita—in other words, how much money families have to spend after inflation and tax. This is the living standards measure used by the Office for National Statistics and by the OECD. On that measure, I can confirm that, on the latest OBR data today, living standards will be higher in 2015 than in 2010. They confirm that they are set to grow strongly every year for the rest of the decade.

The British people for years paid the heavy price of the great recession. Now the facts show that households on average will be about £900 better off in 2015 than they were in 2010—and immeasurably more secure for living in a country whose economy is not in crisis any more, but is instead growing and creating jobs.

Because we have strong growth and a strong economy, we can also afford real increases in the national minimum wage. This week we accept the recommendations of the Low Pay Commission that the national minimum wage should rise to £6.70 this autumn, on course for a minimum wage that, as the Prime Minister just said, will be over £8 by the end of the decade. And we have agreed the biggest increase ever in the apprentice rate. It is the oldest rule of economic policy: it is the lowest paid who suffer most when the economy fails and it is the lowest paid who benefit when you turn that economy around.

Household incomes also go further because we now have the lowest inflation on record. The OBR today revises down its forecast for inflation this year to just 0.2%, and revises it down for the following three years. It is driven by falling world oil and food prices, not by the kind of stagnation we have seen on the continent. But we will remain vigilant.

I am today confirming that the remit of the Monetary Policy Committee for the coming year remains the 2% symmetric CPI inflation target. I am also confirming the remit for our new Financial Policy Committee, so that this time we spot the financial risks in advance.

The fall in food prices is good for families, but it reminds us of the challenge our farmers face from volatile markets. The National Farmers Union has long argued they should be allowed to average their incomes for tax purposes over five years. I agree and in this Budget we will make that change.

We will also use this opportunity to lock in the historically low interest rates for the long term. I can tell the House that we will increase the number of long-dated gilts that we will sell. We will also redeem the last remaining undated British Government bonds in circulation. We will have paid off the debts incurred in the South Sea bubble, the first world war, the debt issued by Henry Pelham, George Goschen and William Gladstone; the debt issued by Gordon Brown will take a little longer to pay off. [Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We want to get through this Budget. The sooner we get through it, the better, and then we can debate it.

[Mr Osborne]

Since the pound goes further these days, now is a good time to confirm the design of the new £1 coin. Based on the brilliant drawing submitted by 15-year-old David Pearce, a school pupil from Walsall, the new 12-sided pound coin will incorporate emblems from all four nations—for we are all part of one United Kingdom.

I now turn to the national debt. Lower unemployment means less welfare. Compared with the autumn statement, welfare bills are set to be an average of £3 billion a year lower. Lower inflation means lower interest charges on Government gilts: those interest charges are now expected to be almost £35 billion lower than just a few months ago.

Rising unemployment and compounding debt interest contributed to our national debt problem, but they were not the only cause. The previous Government increased debt by £192 billion bailing out the banks and sent the national debt rocketing up by a third.

We have already sold the branches of Northern Rock and raised £9 billion from Lloyds shares. Now we go further. Today I can announce that we are launching a sale of £13 billion of the mortgage assets we still hold from the bailouts of Northern Rock and of Bradford & Bingley. Lloyds bank has returned to profit and is paying a dividend, so we can continue our exit from that bailout, too. We will sell at least a further £9 billion of Lloyds shares in the coming year. The previous Government put taxpayers’ money into the banks and this Government are getting it back.

The bank sales, the lower debt interest and the lower welfare bills present us with a choice. We could treat them as a windfall, even though we know the public finances need further repair. With an election looming, some of my immediate predecessors may have been tempted to do this, but that would be deeply irresponsible. We would be spending money we did not really have and racking up borrowing that our country could not afford. We would be repeating all the mistakes of the last Government instead of fixing those mistakes.

Today, the central judgment of this Budget is this: we will use the resources from the bank sales and the lower interest payments and the lower welfare bills to pay down the national debt. We put economic security first, for higher national debt leaves our nation exposed, harms potential growth and costs taxpayers billions of pounds in debt interest. That would be throwing away billions of pounds we should be using to fund our public services and lower taxes.

Five years ago, national debt was soaring. That was why in my first Budget I set a target that we would have the national debt falling as a share of GDP by 2015-16, the last year of this Parliament. The eurozone crisis made that task here at home all the more difficult and for much of the past five years it looked like we might fall short. The Leader of the Opposition confidently predicted we would fail and the shadow Chancellor repeated that prediction last week, but I can announce to the House that the hard work and sacrifice of the British people has paid off. The original debt target I set out in my first Budget has been met. We will end this Parliament with Britain’s national debt share falling. The sun is starting to shine and we are fixing the roof.

The OBR reports today that debt as a share of GDP falls from 80.4% in 2014-15 to 80.2% in 2015-16. It keeps falling to 79.8% in 2016-17, then down to 77.8% the following year, and to 74.8% in 2018-19 before it reaches 71.6% in 2019-20.

National debt as a share of our national income has been increasing every single year since 2001. Those 13 years amount to the longest year-on-year rise in our national debt since the end of the 17th century. Today we bring that shameful record of irresponsibility to an end and make sure we pay down our national debt. There is a consequence for our fiscal plans. As the national debt share is falling a year earlier than forecast at the autumn statement, the squeeze on public spending ends a year earlier too.

In the final year of this decade, 2019-20, public spending will grow in line with the growth of the economy. We can do that while still running a healthy surplus to bear down on our debt—a state neither smaller than we need nor bigger than we can afford. For those interested in the history of these things, that will mean state spending as a share of our national income of the same size as Britain had in 2000. That is the year before spending got out of control and the national debt started its inexorable rise.

When we came to office, the deficit stood at more than 10% of our national income, one of the highest of any major advanced economy and the largest in our peacetime history. The IMF says we have achieved the largest, most sustained reduction in our structural deficit of any major economy. Today, the OBR confirms that it now stands at less than half of the deficit we inherited, but at 5% this year, it is still far too high and it must come down. With our plan, it does. The deficit falls to 4% in 2015-16, then down to 2% the following year and down again to 0.6% the year after that. The deficit is lower in every year than at the autumn statement.

In 2018-19, Britain will have a budget surplus of 0.2%, followed by a forecast surplus of 0.3% in 2019-20. We will also comfortably meet our fiscal mandate and Britain will be running a surplus for the first time in 18 years. That leads to borrowing. Every one of the borrowing numbers is lower than at the autumn statement. We inherited annual borrowing of over £150 billion from the last Government. This year borrowing is set to fall to £90.2 billion, £1 billion lower than expected at the autumn statement. It falls again in 2015-16 to £75.3 billion, then to £39.4 billion the year after that, before falling to £12.8 billion. In total that is £5 billion less borrowing than we forecast just three months ago. In 2018-19, we reach an overall surplus of £5.2 billion, a £1 billion improvement compared with December. In 2019-20 we are forecast to run a surplus of £7 billion.

Growth is up; unemployment is down; borrowing is down in every year of the forecast; we reach a surplus—all contributing to a national debt now falling as a share of national income. Out of the red and into the black—Britain is back paying its way in the world today.

Lower borrowing and falling debt as a share of GDP will continue only with a credible plan to control public spending and welfare. As we end the Parliament, we can measure the scale of the achievement. The administrative costs of central Government will be down by 40%. We have legislated for welfare savings of over £21 billion a year, and because savings have been driven by efficiency and reform, the quality of public services has not gone down—it has gone up. Satisfaction with the NHS is rising year on year; crime is down 20%; 1 million more children attend good or outstanding schools—but the job of repairing our public finances is not done, and here is a very important point that the country needs to understand. National debt as a share of GDP is now falling and we will only keep it falling if we commit to the fiscal path set out in this Budget. If we deviate from this path, if we go slower or borrow more, the national debt share will not keep falling—it will start rising again.

After all the hard work of the British people over the past five years to reach this point, that reversal would be a tragedy. Britain is on the right track; we must not turn back. In order to deliver that falling debt share we need to achieve the £30 billion further savings that are necessary by 2017-18. I am clear exactly how that £30 billion can be achieved: £13 billion from Government Departments; £12 billion from welfare savings; and £5 billion from tax avoidance, evasion and aggressive tax planning. We have done it in this Parliament; we can do it in the next.

The distributional analysis we publish today confirms that the decisions across this Parliament mean that the rich are making the biggest contribution to deficit reduction. That has been true at every fiscal event under this Government. I said we would all be in this together and here is the proof—[Interruption.] Compared with five years ago, inequality is down, child poverty is down, youth unemployment—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We have to get to the end to hear what the Leader of the Opposition has to say. We will not do that if Members keep trying to shout the Chancellor down.

[Mr Osborne]

They do not like to hear it, Mr Deputy Speaker, but inequality is down, child poverty is down, youth unemployment is down, pensioner poverty is at its lowest level ever. The gender pay gap has never been smaller. Payday loans are capped, and zero-hours contracts regulated. Even more than that, opportunity has increased. The number of university students from disadvantaged backgrounds is at a record high, apprenticeships have doubled and there are fewer workless households than ever before. In this Budget we are providing funding for a major expansion of mental health services for children and those suffering from maternal mental illness. Those who suffer from these illnesses have been forgotten for too long. Not any more, because we stand for opportunity for all.

We have also created a fairer tax system—further proof that we are all in this together. The share of income tax paid by the top 1% of taxpayers is projected to rise from 25% in 2010 to over 27% this year. That is higher than in any one of the 13 years of the last Labour Government. We are getting more money from the people paying the top rate of tax because we understand that if you back enterprise, you raise more revenue. The House will also want to know that the lower paid 50% of taxpayers now pay a smaller proportion of income tax than at any time under the previous Government. [Interruption.] I will not accept lessons from those who impoverished the entire country and left millions of people out of work. We are delivering a truly national recovery.

In this Budget, everything we spend will be paid for, and that requires the following decisions. We have already taken steps to curb the size of the very largest pension pots, but the gross cost of tax relief has continued to rise through this Parliament, up almost £4 billion. That is not sustainable. So from next year, we will further reduce the lifetime allowance from £1.25 million to £1 million. This will save around £600 million a year. Fewer than 4% of pension savers currently approaching retirement will be affected. However, I want to ensure that those still building up their pension pots are protected from inflation, so from 2018 we will index the lifetime allowance.

We have had representations that we should also restrict the annual allowance for pensions and use the money to cut tuition fees. I have examined this proposal. It involves penalising moderately paid long-serving public servants, including police officers, teachers and nurses, and instead rewarding higher paid graduates. So I agree with most of the Opposition Front Bench that such a policy would be neither progressive nor fair, and we will not do that.

Nor will we take advice on tax evasion and avoidance from those who, in office, were the friends of the avoiders and the evaders. When we came to office, City bankers boasted of paying lower tax rates than their cleaners, the rich routinely avoided stamp duty and foreigners paid no capital gains tax. We have changed all that, and it was this Prime Minister who put tackling international tax evasion at the top of the agenda at the G8. We will now legislate for the new common reporting standard that we have got agreed around the world. Our new diverted profits tax is aimed at large multinationals that artificially shift their profits offshore. I can confirm that we will legislate for it next week and bring it into effect at the start of next month.

I am also today amending corporation tax rules to prevent contrived loss arrangements, and we will no longer allow businesses to take account of foreign branches when reclaiming VAT on overheads, making the system simpler and fairer. We will close loopholes to make sure that entrepreneurs relief is available only to those selling genuine stakes in businesses; we will issue more accelerated payments notices to those who hold out from paying the tax that is owed; and we will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies that abuse tax reliefs on travel and subsistence, while we will protect those who are genuinely self-employed. Taken together, all the new measures against tax avoidance and evasion will raise £3.1 billion over the forecast period.

I can also tell the House that we will conduct a review on the avoidance of inheritance tax through the use of deeds of variation. It will report by the autumn. We will seek a wide range of views, and we look forward to drawing on the particular expertise of the Leader of the Opposition—unless, that is, the Labour party has executed its own deed of variation by then. My right hon. Friend the Chief Secretary to the Treasury will tomorrow publish further details of our comprehensive plans for new criminal offences for tax evasion and new penalties for those professionals who assist them. Let the message go out: this country’s tolerance for those who will not pay their fair share of taxes has come to an end.

Because we seek a truly national recovery, today I also ask our banking sector to contribute more. Financial services are one of Britain’s most important and successful industries, employing people in every corner of the country. We take steps to promote competition, back FinTech and encourage new business such as global reinsurance, but as our banking sector becomes more profitable again, I believe it can make a bigger contribution to the repair of our public finances. I am today raising the rate of the bank levy to 0.21%. This will raise an additional £900 million a year. We will also stop banks deducting from corporation tax the compensation they make to customers for products they have been mis-sold, such as PPI. Taken together, these new banking taxes will raise £5.3 billion across the forecast. The banks got support going into the crisis; now they must support the whole country as we recover from the crisis.

In each Budget we have used the LIBOR fines paid by those who demonstrated the very worst values to support those who represent the very best of British values. Today I can announce a further £75 million of help. Last week’s service of commemoration reminded us all of the debt we owe to those brave British servicemen and women who served in Afghanistan. We will provide funds to the regimental charities of every regiment that fought in that conflict, and we will contribute funding to the permanent memorial to those who died there and in Iraq. In the 75th anniversary year of the battle of Britain, we will help to renovate the RAF museum at Hendon, the Stow Maries airfield and the Biggin Hill chapel memorial so that future generations can be reminded of the sacrifice of our airmen in all conflicts. We will provide £25 million to help our eldest veterans. That will include nuclear test veterans, and I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on his campaign on their behalf.

Many Members on the Government Benches have also written to me asking for support for their local air ambulances. We have backed these brilliant local charities in the past, and we do so again today, with funds for new helicopters for the Essex & Herts, East Anglian, Welsh and Scottish air ambulances, and for the Lucy air ambulance that transports children requiring urgent care. I pay tribute to many hon. Friends, including my hon. Friends the Members for Norwich North (Chloe Smith) and for Castle Point (Rebecca Harris) for their campaigns on this issue.

Our blood bike charities also do an incredible job. MPs from across the House have written to me about this campaign, and we are responding to it today by refunding the charities’ VAT. We are also setting aside £1 million to help to buy defibrillators for public places, including schools, and to support training in their use to save more lives.

Talking about people who save lives, and who sometimes sacrifice their own life to do so, we will also correct the historical injustice to the spouses of police officers, firefighters, and members of the intelligence services who lose their lives on duty. And there is additional money today to support the fight against terrorism.

The £15 million church roof fund that I set aside at the autumn statement to support church roof appeals has been heavily oversubscribed, so we are today more than trebling it. Apparently, we are not the only people who want to fix the roof when the sun is shining. Every weekend, thousands of people go out and raise sums for their local charities across Britain through sponsored events and high street collections. I am significantly extending the scheme that I introduced that allows charities to claim automatic gift aid on those donations, increasing it from the first £5,000 they raise to £8,000. That will benefit over 6,500 small charities.

We could not let the 600th anniversary of Agincourt pass without commemoration. The battle of Agincourt is, of course, celebrated by Shakespeare as a victory secured by a “band of brothers”, which is, sadly, not an option available to the Labour party. But it is, of course, when a strong leader defeated an ill-judged alliance between the champion of a united Europe and a renegade force of Scottish nationalists, so it is well worth spending £1 million to celebrate it.

Our country does not rest on its past glories. Within just 15 years we have the potential to overtake Germany and have the largest economy in Europe. Five years ago, that would have seemed hopelessly unrealistic; economic rescue was the limit of our horizons. Today, our goal is for Britain to become the most prosperous of any major economy in the world in the coming generation, with that prosperity widely shared across the country.

London is the global capital of the world and we want it to grow stronger still. Today, we confirm: new investment in transport; regeneration from Brent Cross to Croydon; new powers for the Mayor over skills and planning; and new funding for the London Land Commission to help address the acute housing shortages in the capital, for we do not pull the rest of the country up by pulling London down. Instead we will build on London’s success by building the northern powerhouse. Working across party lines, and in partnership with the councils of the north, we are this week publishing a comprehensive transport strategy for the north. We are funding the Health North initiative from the great teaching hospitals and universities there. We are promoting industries, from chemicals in the north-east to tech in the north-west. And I can today confirm agreement with the West Yorkshire Combined Authority for a new city deal.

Our agreement with Greater Manchester on an elected mayor is the most exciting development in civic leadership for a generation, with the devolution of power over skills, transport and now health budgets. I can announce today that we have reached provisional agreement to allow Greater Manchester to keep 100% of the additional growth in local business rates as we build up the northern powerhouse. For where cities grow their economies through local initiatives, let me be clear: we will support and reward them. We are also going to offer the same 100% business rate deal to Cambridge and the surrounding councils, and my door is open to other areas that want to proceed as well, for our ambition for a truly national recovery is not limited to building a northern powerhouse. We back in full the long-term economic plans we have for every region.

The midlands is an engine of manufacturing growth, so we are today giving the go-ahead to the £60 million investment in the new energy research accelerator that has been sought and confirming that the new national energy catapult will be in Birmingham. And we are going to back our brilliant automotive industry by investing £100 million to stay ahead in the race to driverless technology. To encourage a new generation of low-emission vehicles, we will increase their company car tax more slowly than previously planned, while increasing other rates by 3% in 2019-20.

We are also connecting up the south-west, with over £7 billion of transport investment, better roads, support for air links, and, I can confirm today, a new rail franchise which will bring new inter-city express trains and greatly improved rail services to the south-west. We are confirming the introduction of the first 20 housing zones that will keep Britain building, along with the extension of eight enterprise zones across Britain, with new zones in Plymouth and Blackpool, too. I congratulate my hon. Friends from those areas on their campaigns.

We are giving more power to Wales. We are working on a Cardiff city deal and we are opening negotiations on the Swansea bay tidal lagoon. The Severn crossings are a vital link for Wales. I can tell the House we will reduce the toll rates from 2018, and abolish the higher band for small vans and buses. It is a boost for the drivers of white vans—let me reassure the deputy leader of the Labour party that it will apply to pink vans, too.

The legislation devolving corporation tax to Northern Ireland passed the House of Lords yesterday and we now urge all parties to commit to the Stormont House agreement, of which it was part. In Scotland, we will continue working on the historic devolution agreement, implementing the Glasgow city deal and opening negotiations on new city deals for Aberdeen and, of course, for Inverness.

Although the falling oil price is good news for families across the country, it brings with it challenges for hundreds of thousands whose jobs depend on the North sea. Thanks to the field allowances we have introduced, we saw a record £15 billion of capital investment last year in the North sea. But it is clear to me that the fall in the oil price poses a pressing danger to the future of our North sea industry, unless we take bold and immediate action. I take that action today.

First, I am introducing, from the start of next month, a single, simple and generous tax allowance to stimulate investment at all stages of the industry. Secondly, the Government will invest in new seismic surveys in underexplored areas of the UK continental shelf. Thirdly, from next year, the petroleum revenue tax will be cut from 50% to 35% to support continued production in older fields. Fourthly, I am, with immediate effect, cutting the supplementary charge from 30% to 20%, and backdating it to the beginning of January. It amounts to £1.3 billion of support for that vital industry in the North sea. The OBR assesses that it will boost expected North sea oil production by 15% by the end of the decade. It goes without saying that an independent Scotland would never have been able to afford such a package of support. But it is one of the great strengths of our 300-year-old Union that just as we pool our resources, so we share our challenges and find solutions together—for we are one United Kingdom.

We back oil and gas, and we also back our heavy industry, such as steel and paper mills. I have listened to the engineering employers, and I will bring forward to this autumn part of our compensation for energy-intensive plants. But since we aim to be the most prosperous major economy in the coming generation, then we must support the latest insurgent industries too. So we take steps to put Britain at the forefront of the online sharing economy. Our creative industries are already a huge contributor to the British economy, and we back them again today: we make our TV and film tax credits more generous, we expand our support for the video games industry and we launch our new tax credit for orchestras. Britain is a cultural centre of the world, and with these tax changes I am determined we will stay in front. In the week after Cheltenham, we support the British racing industry by introducing a new horse race betting right. Local newspapers are a vital part of community life, but they have had a very tough time in recent years. Today, we announce a consultation on how we can provide them, too, with tax support.

Future economic success depends on future scientific success, so we will add to the financial support I announced at the autumn statement for postgraduates, with new support for PhDs and research-based masters degrees. We are also committing almost £140 million to world-class research across the UK into the infrastructure and cities of the future, and I can announce today that our national research institutes get new budget freedoms. We will also invest in what is known as the “internet of things”. This is the next stage of the information revolution, connecting up everything from urban transport to medical devices to household appliances, so should—to use a completely ridiculous example—someone have two kitchens, they will be able to control both fridges from the same mobile phone.

All these industries depend on fast broadband. We have transformed the digital infrastructure of Britain over the last five years. Over 80% of the population have access to superfast broadband and there are 6 million customers of 4G that our auction made possible. Today, we set out a comprehensive strategy so that we stay ahead. We will use up to £600 million to clear new spectrum bands for further auction, so that we improve mobile phone networks. We will test the latest satellite technology, so that we reach the remotest communities. We will provide funding for wi-fi in our public libraries, and expand broadband vouchers to many more cities, so that no one is excluded. And we are committing today to a new national ambition to bring ultrafast broadband of at least 100 megabits per second to nearly all the homes in the country, so that Britain is out in front.

We cannot create jobs without successful businesses. As well as the right infrastructure, businesses also need low, competitive taxes. In two weeks’ time, we will cut corporation tax to 20%, one of the lowest rates of any major economy in the world. There are those here who are committed to putting the rate of corporation tax up. They should know that that would be the first increase in this tax rate since 1973, and a job-destroying and retrograde step for this country to take.

Rather than increasing the jobs tax as some propose, we will go on cutting it. This April, we will abolish national insurance for employing under-21s. Next April, we will abolish it for employing a young apprentice. I can confirm today that 1 million small businesses have now claimed our new employment allowance.

From this April, we are also extending our small business rate relief and our help for the high street. In my view, the current system of business rates has not kept pace with the needs of a modern economy and changes to our town centres, and it needs far-reaching reform. Businesses large and small have asked for a major review of this tax, and this week that is what we have agreed to do.

The boost I provided to the annual investment allowance finishes at the end of the year. A better time to address that is in the autumn statement. However, I am clear from my conversations with business groups that a reduction to £25,000 would not be remotely acceptable and so it will be set at a much more generous rate. Today, I am announcing changes to the enterprise investment schemes and the venture capital trusts to ensure that they are compliant with the latest state aid rules and increasing support to high-growth companies.

Businesses, like people, want their taxes to be low. They also want them to be simple to pay. We set up the Office of Tax Simplification at the start of this Parliament, and I want to thank Michael Jack and John Whiting for their fantastic work in this regard. To support 5 million people who are self-employed and to make their tax affairs simpler, we will, in the next Parliament, abolish entirely class 2 national insurance contributions for the self-employed.

Today, we can bring simpler taxes to many more people. Some 12 million people and small businesses are forced to complete a self-assessment tax return every year. It is complex, costly and time-consuming. So, today I am announcing that we will abolish the annual tax return all together. Millions of individuals will have the information the Revenue needs automatically uploaded into new digital tax accounts. A minority with the most complex tax affairs will be able to manage their account online. Businesses will feel like they are paying a simple, single business tax, and again, for most, the information needed will be automatically received. This revolutionary simplification of tax collection will start next year, because we believe that people should be working for themselves, and not for the tax man. Tax really does not have to be taxing, and this measure spells the death of the annual tax return.

We want to help families with simpler and lower taxes, so let me turn now to duties. I have no changes to make to the duties on tobacco and gaming that have already been announced. Last year, thanks to the persistent campaigning of my hon. Friends the Members for Burton (Andrew Griffiths) and for Keighley (Kris Hopkins), I cut beer duty for the second year in a row, and the industry estimates that that helped to create 16,000 jobs. Today I am cutting beer duty for the third year in a row—taking another penny off a pint. I am also cutting cider duty by 2% to support our producers in the west country and elsewhere. To back one of the UK’s biggest exports, the duty on Scotch whisky and other spirits will be cut by 2% as well. Wine duty will be frozen. That will mean more pubs saved, jobs created, families supported, and a penny off a pint for the third year in a row.

I also want to help families with the cost of filling up a car. It is a cost that bears heavily on small businesses, too. The previous Government’s plans for a fuel duty escalator meant that taxes would rise above inflation every year. But I want to make sure that the falling oil price is passed on at the pumps, so I am today cancelling the fuel duty increase scheduled for September. Petrol is frozen again. It is the longest duty freeze in more than 20 years. It saves a family around £10 every time they fill up their car. That is £10 off a tank with the Tories.

We believe that work should pay and that families should keep more of the money they earn. When we came to office, the personal tax-free allowance stood at just £6,500. We set ourselves the goal—even in difficult times—of raising that allowance to £10,000 by the end of the Parliament, and we have more than delivered on that promise. In two weeks’ time, the allowance will reach £10,600. That is a huge boost to the incomes of working people, and one of the reasons why we have a record number of people in work. Today I can announce that we will go further. The personal tax-free allowance will rise to £10,800 next year, and then to £11,000 the year after. That is £11,000 that people can earn before paying any income tax at all. It means that the typical working taxpayer will be more than £900 a year better off. It is a tax cut for 27 million people, and means that we have taken almost 4 million of the lowest paid out of income tax all together.

As we pass on the full gains of this policy, I can make this announcement today: for the first time in seven years, the threshold at which people pay the higher tax rate will rise not just with inflation, but above inflation. It will rise from £42,385 this year to £43,300 by 2017-18. That means that an £11,000 personal allowance and an above-inflation increase in the higher rate have been delivered by a coalition Government and a Conservative Chancellor. That is a down-payment on our commitment to raise the personal allowance to £12,500 and the higher rate threshold to £50,000—it is an economic plan working for you.

In this Budget, the rate of the new transferable tax allowance for married couples will rise to £1,100, too. That is the allowance that is coming in just two weeks’ time to help more than 4 million couples. That is help that Labour would take away, but that we on this side are proud to provide.

This Budget takes another step to move Britain from a country built on debt to a country built on savings and investment. Last year I unlocked pensions with freedom for millions of savers, but there is more to do to create a savings culture. Today I announce four major new steps in our savings revolution. They are based on the principles that cutting taxes increases the return on savings, and that people should have freedom to choose how they use those savings. First, we will give 5 million pensioners access to their annuity. For many, an annuity is the right product, but for some it makes sense to access their annuity now, so we are changing the law to make that possible. From next year, the punitive tax charge of at least 55% will be abolished. Tax will be applied only at the marginal rate, and we will consult to ensure that pensioners get the right guidance and advice. That means freedom for 5 million people with an annuity.

Secondly, we will introduce a radically more flexible individual savings account. In two weeks’ time, the changes that I have already made mean that people will be able to put £15,240 into an ISA. But if they take that money out, they lose their tax-free entitlement, and so they cannot put it back in. That restricts what people can do with their own savings, but I believe that people should be trusted with their own hard-earned money. With the fully flexible ISA, people will have complete freedom to take money out, and put it back in later in the year, without losing any of their tax-free entitlement. It will be available from this autumn, and we will also expand the range of investments that are eligible.

Thirdly, we will take two of our most successful policies and combine them to create a brand new Help to Buy ISA. We do it to tackle two of the biggest challenges facing first-time buyers: the low interest rates when they build up their savings, and the high deposits required by the banks. The Help to Buy ISA for first-time buyers works like this: for every £200 they save for their deposit, the Government will top it up with £50 more. It is as simple as that. We will work hand in hand to help you buy your first home. This is a Budget that works for you. A 10% deposit on the average first home costs £15,000, so if you put in up to £12,000, we will put in up to £3,000 more. A 25% top-up is equivalent to saving for a deposit from your pre-tax income; it is effectively a tax cut for first-time buyers. We will work with industry so that it is ready for this autumn, and we will make sure that you can start saving for it right now.

So, there is access for pensioners to their annuities, a new flexible ISA, the backing of home ownership with a first-time buyer bonus—and one other reform. Today I introduce a new personal savings allowance that will take 95% of taxpayers out of savings tax altogether. From April next year, the first £1,000 of the interest earned on all savings will be completely tax-free. To ensure that higher rate taxpayers enjoy the same benefits but no more, their allowance will be set at £500. People have already paid tax once on their money when they earned it; they should not have to pay tax a second time when they save it. With our new personal savings allowance, 17 million people will see the tax on their savings not just cut, but abolished altogether—an entire system of tax collection can be scrapped. At a stroke we create tax-free banking for almost the entire population; and we build the economy on savings, not on debt.

Five years ago I had to present to this House an emergency Budget. Today I present the Budget of an economy that is stronger in every way than the one we inherited—the Budget of an economy taking another big step from austerity to prosperity. We cut the deficit, and confidence is returning. We limited spending, made work pay and backed business, and growth is returning. We gave people control over their savings and helped people own their own homes, and optimism is returning. We have provided clear and decisive economic leadership, and from the depths Britain is returning. The share of national income taken up by debt—falling; the deficit— down; growth—up; jobs—up; living standards—on the rise. Britain: on the rise. This is the Budget for Britain, the come-back country.

Provisional Collection of Taxes

Motion made, and Question put forthwith (Standing Order No. 51(2)),

That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—

(a) Alcoholic liquor duties (rates) (motion no. 27.); and

(b) Tobacco products duty (rates) (motion no. 28.).— (Mr George Osborne.)

Question agreed to.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I now call upon the Chancellor of the Exchequer to move the motion entitled “Amendment of the Law”. It is on this motion that the debate will take place today and on succeeding days. The Questions on this motion and on the remaining motions will be put at the end of the Budget debate on Monday 23 March.