I think I can say with confidence that there has never been a budget that is anticipated with so much concern from the public at large. Everyone in the country waits to see what the negative outcomes will be for them. So, anything coming from George Osborne has to be of interest. He appeared on the Andrew Marr show this morning to talk about the background to his budget statement, so I thought it worth taking the time to produce a transcript.
Marr: Tuesday is of course also the day of the emergency budget and with that in mind, I’m joined by the Chancellor of the Exchequer George Osborne. Welcome Chancellor.
First of all, is it all done? Is it settled, is it signed off?
Well actually the budget measures and what’s in the budget is largely signed off and we had a meeting on Friday with David Cameron and Nick Clegg and Danny Alexander, the Chief Secretary to the Treasury and the measures are all agreed and in fact the creation of this independent office for budget responsibility forces chancellors now to take these decisions some days before the budget rather than doing it the night before which has been the case in the past.
Sounds like there are bits of it which are not completely nailed down.
Well the only thing I haven’t got is the speech yet but after this interview is finished I’m going to go and write the speech.
Ok, how bad’s it going to be because we’ve had all sorts of lurid-sounding language. We’ve had all sorts of predictions of a £30 billion pound squeeze or a £40 billion pound squeeze, so just give us a sense of the badness.
Well, I don’t see it as badness, I see it as decisive action to deal with Britain’s record budget deficit and we sit here as the country in Europe with the largest budget deficit of any major economy at a time when markets and investors and businesses are looking around the world at countries that can’t control their debts. And so we’ve got to deal with that and in that sense it is an unavoidable budget but what I’m determined to do is to make sure that the measures are tough but they’re also fair and we’re all in this together and that as a country we take the steps necessary to actually provide the prosperity for the future.
So, when you say that we’re all in it together, the people right at the top of the tree, the people who’ve been getting huge bonuses, the banks and the bank people and so on, the private sector. Are they going to be stung alongside all the public sector workers who are going to lose their jobs?
Well look, that’s a very pejorative question. “Stung, losing jobs, etc”.
Well, they are going to lose their jobs!
What we’re clear about is that all parts of society are going to have to make a contribution and, yes, we have to deal with the costs in the public sector but we also have to deal with the fairness of the banks making a contribution, now the previous government didn’t want a bank levy because they wanted every country in the world to sign up to one before they would agree to one in Britain. I don’t think that’s fair and I’m going to ask the banks to pay a bank levy so there will be a contribution from them. Controversial in my own party is our decision to raise capital gains tax and we’ll have more to say about that in the budget.
The bank levy? A. It’s definitely going to happen and B. I think the lib dems talked about it being ten percent of profit. Is that the area you’re looking at.
Well you have to wait for the budget, for specific tax measures but I stood up at the Mansion House in front of all the bankers and the City of London last week and I said very clearly there was going to be a bank levy, that we were going to have better regulated banks, that it was going to be tougher regulation and that we were also going to look at the structure of banking, so I’m perfectly prepared to say tough things to the financial services community, understanding that we want a very competitive and successful financial services community but not one that ends up being bailed out by the taxpayer, so if there are a range of decisions we need to take but let’s be clear, as a new government we have inherited a truly awful financial situation. No incoming chancellor has ever faced a set of public finances like this and unless we take the determined and concerted action to deal with that, then I am afraid we will find our country on the road to ruin. We will find higher interest rates, businesses going bust, unemployment rising and our living standards declining and I’m not prepared to put up with that.
There are two, sort of ideas about the way people have spoken ahead of this budget, one is that there is a lot of very grim talk including from the prime minister and then actually it won’t be so bad on Tuesday and everybody will draw a sigh of relief, or, conversely that you’re really going to go for it in this budget, you’ve decided that, right at the beginning of a new parliament with the mandate and all the rest of it is the time to deliver the toughest things that you have to do.
Well it will be a budget for the parliament, it’s not just a budget for one year. This is going to set out measures that will take effect over a four year period, but as well as paying for past mistakes it also plans for the future and it sets out policies that I believe will create a more balanced economy, that we don’t just rely on one industry, financial services for our growth. We don’t have all the prosperity concentrated in the south-eastern corner of our country. Where all sections of society share in that prosperity. We don’t leave 5 million people on out-of-work benefits. So, as well as paying for these past mistakes, which we’ve got to do as a country and I think most people understand that. It also, I hope lays the foundations for a much stronger and more balanced economy in the future.
So, after Tuesday’s announcements we will know, will we what your plans are for the deficit reduction over those 5 years. It will be further and faster. It will be, I don’t know, question mark? Most of the deficit. There’s been a suggestion that all of the structural deficit, the hard core that’s left after the ups and downs of the cycle. All of that you’d like to get rid of in this 5 years?
Well, people will have to see my fiscal mandate when I deliver it on Tuesday. In broad terms what we will do is to set out our 5 year plan to deal with the deficit. To put it beyond doubt the question that Britain can live within her means. I think people should judge this budget, not just on the day after it’s delivered, of course they will pass judgement then, but also in the years to come and whether it laid the foundations for prosperity, for a country that can live within its means, for a more balanced and more equitable economy.
Before the election you said that you were going to go further and faster than Labour would have done in their plan. Is that still the case?
Yes, we will go further and faster. There will be an accelerated reduction in the structural deficit. By the way, that is what the G20 now recommends for countries with high budget deficits, and there are few with a higher budget deficit than Britain. So, we will be taking that action. It’s very important by the way that countries with surpluses like China also play their part in stimulating demand in the economy. We need a more balanced global economy but unfortunately Britain is in a position where it borrowed more than anyone else. Its banks were more leveraged than anyone else, our consumers borrowed more than anyone else and we have got to deal with those debts today.
Before the election again you said that you wanted to deal with this on a sort of 80 percent spending reductions versus 20 percent tax rises proportion. Is that still broadly the proportion that you want to see?
Yeah, I think that is a good rule of thumb. It’s not going to be exactly 80/20, that, I think is a good rule of thumb, that is what other countries have done when they have successfully tackled large deficits. In the end Britain’s problem came from over-spending, we didn’t have the money to spend in the way that we did and we went into the recession, into the banking crisis with the largest structural deficit. We didn’t fix the roof while the sun was shining. So that’s why we’ve got to deal with a spending problem and I think that mix is a broadly correct one.
On the tax side, I know you can’t go into details but is VAT a regressive tax?
Well, I’m not getting into a discussion on individual tax measures because I don’t think… The price of coming onto a programme like this just a couple of days before you deliver a budget is that you can’t answer certain questions, but I thought it was important to set out the broad approach we are going to take, our priorities and making it clear to people that, yes there will be tough decisions but that they will be done in a fair way and the object here is a much more prosperous and secure economy.
Ok, I understand that but, in terms of more extreme ideas about VAT, up to 25 percent, or indeed some of the fears of your own backbenchers about capital gains tax. Can you reassure anybody at all on any of that?
I’m not going to get drawn into individual taxes, with capital gains tax, what we have said is that we want to protect business assets, that’s important and here is a tax where at the moment we see massive income tax evasion. We see people shifting their income. These are very rich people who often shift their income from income tax where they will be paying 40 or 50 percent to Labour’s CGT rate of 18 percent and that’s not fair given the current situation so we’ll deal with that. As I say the whole object…
The prime minister said that he didn’t come into politics to clobber people who are doing the right thing.
What I came into politics for and David Cameron came into politics for is to have a society which is based on a secure and strong economy, where the gains of that economy are equitably distributed across society. Where wealth is not concentrated in one part of society or one part of the country and with our partners now in the coalition that is what we will deliver.
A lot of your own backbenchers however want some kind of help for people whose life savings may be affected by this, who have spent all their lives saving. Some kind of taper, some kind of help for people who really have done the right thing?
Well of course I have listened to a lot of representations on this issue and lots of others and one of the things I’ve tried to do in the 7 short weeks I’ve been chancellor is to have a completely open door, people have been able to come and see me as members of parliament. I’ve been speaking to business organisations, trades unions, all sorts of other people. So I’ve been listening, of course I’ve then got to make a judgement with my colleagues in the cabinet and people will hear that judgement on Tuesday.
Can I ask you about the 80 percent cut as it were on the spending side, the prime minister said that three huge areas. Public sector pay, public sector pensions and welfare. You couldn’t ignore those areas simply because of the size of the spending involved in those. Can I just take them one by one. Public sector pay. You announced before the election that you were going to go for a public sector pay freeze of a year. You just said that you were talking about a whole parliament. Could we see a public sector pay freeze that would go on beyond a year?
Again you are going to have to wait for my budget, but we did make it clear there would need to be pay restraint in the General Election and let’s be clear, the reason for doing this is A. To put the economy on a sounder footing but also to protect jobs in the public sector. But I mean, this is the trade-off that many people in the private sector have made over the last couple of years is to accept things like pay freezes in return for trying to protect jobs, you see that in car plants across the country and in other private sector businesses. And I think people in the public sector understand, I think that the public sector understand that pay restraint is a way of protecting jobs and of course we want to protect jobs above all else.
What about the Pensions Bill, because as things stand. I know it’s a slight controversial figure but some people say that the bill for public sector pensions is going to triple to about £9.5 billion within 5 years and that would clearly be unsustainable. Have you got any plans to deal with it?
Well, the public sector pensions bill is unsustainable and the office for budget responsibility, this independent body we’ve created has shown that. We do have to tackle it but again I want to do this in a way that everyone feels that they’ve had a chance to contribute, to have their say. So we’re going to be establishing an independent pensions commission and that independent pensions commission is going to be chaired by John Hutton.
The Labour Minister?
The former Labour Work and Pensions Secretary, former Labour Defence Secretary. He is a man with real intelligence and knowledge in this area. I think he is going to bring a cross- party perspective to what is a national problem, and means that this is not going to be done on a partisan basis. Having John Hutton on board chairing this independent pensions commission will mean that we can approach this issue of public sector pensions in a fair and equitable way.
Some people watching will say. Ahh, another commission, he’s kicking it into the long grass.
No, I’m not kicking it into the long grass. John Hutton will report in September on early steps we can take save costs in public sector pension provision and then by the next budget, next Spring he will set out recommendations for longer term reforms of public sector pensions. We want to balance the entirely legitimate desire of people in the public sector to have a decent retirement which I want to protect and we’re certainly going to protect accrued rights, but also something that’s fair for taxpayers across the economy. Dealing with that division, that disparity between private and public sector provision is a very important part of keeping our country together in the years ahead.
It is a very difficult thing to do though, first of all can we be clear that quite a lot of public sector workers or employees who think at the moment that they have got a pension of a certain size waiting for them down the line will find that it is a smaller pension.
Well, first of all we are going to protect accrued rights and it’s very important that we establish that right from the off.
Because you could be legally challenged if you didn’t.
It’s very important for reasons of equity that we protect accrued rights but we are going to look at the sustainability and affordability of public sector pensions going forward. This is not an issue that can be ignored, I know that if you had one of the Labour leadership contenders here they’d say ‘This is outrageous, we don’t need to do this’, they are not telling you the truth. This is a real problem for our public finances, for taxpayers across all generations going forward and we’ve got to deal with it and having John Hutton, a former Labour cabinet minister with real experience in this area ensures that it is going to be approached on a cross-party basis and everyone is going to have their chance to have their say.
You’ve talked a lot about fairness and bringing people with you and everybody being in it together but in the end you will have to be announcing some pretty brutal decisions won’t you, on Tuesday if you are going to convince the markets that you mean business?
Well, I think they are necessary decisions, I think the country understands that we can’t go on piling up the debt, we can’t have this mañana attitude which that we’re gonna deal with this problem next year. We see what happens to countries that don’t face up to their problems. You can see in Greece an example of a country that didn’t face up to its problems and that is the fate that I want to avoid and I’m absolutely clear, I don’t want the question even asked ‘Can Britain pay its way in the world? I’m going to prove on Tuesday that we can and then we can go on to create that more balanced economy which I think will bring prosperity for all.
And to put it personally you will be a very unpopular man among a lot of people, there will be huge protest of some kind no doubt over the years ahead. Do you have the steel to go through with this. Are you going to be as tough as Margaret Thatcher’s chancellors were? Geoffrey Howe when he came in in 1979 and the party and the leadership went through a very, very hard time indeed.
I’m committed to doing what is the right thing. What’s the point of doing a job like this. Not to chase tomorrow’s headlines, not to chase the 24 hour news cycle. It’s to do what you believe is absolutely right for the long term future of this country and that is what I’m determined to do on Tuesday. I’m not courting popularity or unpopularity…
And you have the sort of steel to face down massive demonstrations and all the rest of it?
I think people can make an early judgement on the last 6 or 7 weeks. They’ve seen that I’ve delivered on what I promised. An independent scrutiny of the budget figures, in-year reductions in spending. Dealing with all the I.O.U’s and the morass of unfunded spending commitments we inherited. Now we’ve got a budget that will deal decisively with our deficit and put this issue beyond doubt.
Your critics, and there are many economists as well as politicians say that you are taking an enormous risk with all of this and although the deficit has to come down you may very well push the economy back into recession and once you push it back into recession the unemployment bill rises and you go into the downward spiral. If there are signs that that is happening will you change course?
Well look, the greatest risk to the British economy at the moment is the sovereign debt risk, that’s what’s stalking European economies at the moment, that’s what you read about when you pick up your newspapers every morning and it’s a real threat and we’ve got to deal with that risk. We can’t put off this decision about how we deal with our debt. Now the package that I announce on Tuesday will be staggered over the parliament, it doesn’t take effect in one day or one month it’s staggered over the parliament, it’s a budget for the parliament but it deals with our problems and in the end….
This is an ability to change course if necessary if the economy starts to contract sharply, there’s a problem of demand in Europe, unemployment is shooting up. Can you look at this again?
This is a plan to deal with our deficit. We set a clear fiscal mandate across the parliament and I’m absolutely clear Tuesday’s got to be a moment when Britain looks itself in the face and says ‘we are going to deal with the problems of the past. We are going to pay for the bills of the past and we are going to plan for a brighter future’. And that’s what this budget is about.
And inevitably given your figures and plans then those on benefits are going to find that, either find their benefits frozen or in many cases going?
Well, I’m not going to pre-empt any announcements on welfare, but we have to tackle this welfare bill it has got completely out of control in recent years and what I want to do is to reward work. I want to support the person who leaves their house at 6 or 7 in the morning, goes out and does perhaps, a low-paid job in order to provide for their family and is incredibly frustrated when they see on the other side of the street the blinds pulled down and someone sitting there on a life of out-of-work benefits
So this is not simply because of the situation you’ve inherited. This is something you think is right to do anyway?
You’ve got to have welfare reform. It is completely unacceptable that we condemn 5 million of our people in this country to a life on out-of-work benefits and we’ve got to tackle welfare reform and we’ve got to tackle welfare bills because that is such a big component of government spending.
George Osborne, Chancellor, big week ahead of you. Thank you very much for coming in this morning
And with that the interview came to an end. Guess we’ll all find out on Tuesday…
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