HC 1691 Treasury - Minutes of EvidenceHc 1691

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Oral Evidence

Taken before the Treasury Committee

on Wednesday 7 December 2011

Members present:

Mr Andrew Tyrie (Chair)

Michael Fallon

Mark Garnier

Stewart Hosie

Andrea Leadsom

Mr Andrew Love

John Mann

Mr Pat McFadden

Mr George Mudie

Jesse Norman

Teresa Pearce

Mr David Ruffley

John Thurso


Examination of Witnesses

Witnesses: Rt Hon George Osborne, Chancellor of the Exchequer, Sir Nicholas Macpherson, Permanent Secretary, HM Treasury, and Mark Bowman Director, Strategy, Planning and Budget, HM Treasury.

Q258 Chair: Chancellor, thank you very much for coming before us this afternoon and for bringing senior officials with you. Let me begin by asking about the output gap. This is generally held to be-although necessary-quite an academic construct. Its sharp revision this year in the autumn statement has in turn led you to have to revise the measures necessary to meet the fiscal target. Are you annoyed about that?

Mr Osborne: First, thank you for having us here. I should introduce the permanent secretary, Nicholas Macpherson, and the director of the Budget, Mark Bowman, who is in his last week in the job before he heads off to the Department for International Development. I should place on record the great job he has done not just for this Government but for the previous Government as well. May I also say, because this is an opportunity to do so, Mr Chairman, that I am planning to respond to John Vickers’s report on 19 December when I will make a statement in Parliament, and that the Budget will be on 21 March?

Let me address directly the question that you ask. I was not annoyed, as you put it. I have created the Office for Budget Responsibility to give the Government, Parliament and the country the best independent estimate of what is happening to the British economy and what will happen to the British economy in the future. Inevitably, it is a forecast, and forecasting is never going to be something that you get 100% right. I would argue that it is impossible to get a forecast 100% right in every determinant, because there are a lot of judgments that need to be made. That is why I felt it was important to take those judgments out of the hands of politicians who have perverse incentives to take a more optimistic view of the output gap, or take a look at some of the tax receipts and take a more optimistic view of those.

Chair: We have taken extensive evidence on that issue in the past, but the question is how do you feel about the fact that perhaps in six months’ time, even four months’ time, you may be faced with another measure of the output gap?

Mr Osborne: What I would say is that we have set up an independent body. Of course, I have the right within the legislation to publicly disagree with a forecast that I do not accept. I have not made use of that right, because I accept this forecast. Specifically on the output gap, I think there is a productivity question here, which is why has productivity growth been so sluggish over the last few years? There is quite a lot of evidence that they point to in the OBR document, which other forecasters have pointed to, so I think it is a perfectly reasonable assumption that they have made. I think it is up to the elected politicians to deal with the evidence put before them by an independent body rather than constantly-certainly speaking for myself as Chancellor-question whether they have got it right.

Q259 Jesse Norman: Sir Nicholas, the output gap is the Higgs boson of economics, or would be, except we know more about the Higgs boson than we do about the output gap. We know how large it is and we know it probably does not exist. Did you advise the Chancellor that it might not be wise to premise fiscal policy on a variable that was so changeable?

Sir Nicholas Macpherson: It is a convention that I do not go into the advice that I offer the Chancellor. The reality is that you have to consider what the alternative is. If you do not take some view on trend growth, you have to set policy by reference to where the economy is at each point in time. For example, you can have a balanced budget rule and try to hit it every year. The problem with that is that it can be very pro-cyclical indeed, as some European countries are finding at present. So you do need to take the cycle into account in some way.

Q260 Jesse Norman: Even if the effect could be reversed with a different calculation in a few months’ time?

Sir Nicholas Macpherson: There clearly is that risk, but it is worth contemplating what would be happening in the coming period. If we had no cyclical adjustment whatever, you could end up having far bigger swings in policy.

Q261 Jesse Norman: Thank you for that. Chancellor, did you find you had to change your plans significantly when you learnt about the OBR’s revised forecasts?

Mr Osborne: What I had to do was take a decision, which was how to respond to them. I did not actually change the spending totals set out in the spending review, so they are the same as they were last year, and that is clear from the table. Anyway, I was faced with a decision about what public sector pay should be after the pay freeze came to an end. I was faced with deciding what the spending totals for the Government should be in 2015-16 and 2016-17-they had to be set out either now or early next year. Obviously, I took into account the economic situation and the fiscal position in making those decisions, which were informed by the judgment of the OBR. They were decisions that I was going to have to take anyway, so it did not force me to reopen the spending review.

Q262 Jesse Norman: I think that the OBR has been an enormously important innovation, but does it not pose the risk that you may be, as it were, at the whim of an academic vagary rather than able to take a longer term view of the fiscal position as a whole?

Mr Osborne: No, I do not accept that. First, I am the person in the Government who is accountable for economic policy. I am accountable for the judgments I have made and for accepting the forecast that the body has produced for us. I do not in any way duck my responsibilities and the things for which I should be held accountable. In my judgment, first, this is a reasonable forecast and secondly, it was important to stick to the fiscal mandate and debt target that we had set out in order to maintain credibility. When it comes to constructing that fiscal mandate-the point that emerged in your questions with the Permanent Secretary-you have to take some view of where the economy is in the cycle and what will happen to the deficit, regardless of policy, as the economy grows in future. You have to have some judgment about that, so it is perfectly reasonable for any Government that are thinking about their fiscal policy to try to take a view on the structural position. If you did not do that, as the Permanent Secretary pointed out, you would get into rather crude balanced budget rules, which I thought the world had moved on from, although-as he said-some countries are looking at them again.

Q263 Jesse Norman: For the past 10 years or so, we have been living through a period of crony capitalism, of which one example would be the forced merger of Lloyds and Halifax Bank of Scotland, which destroyed an enormous amount of value for shareholders in Lloyds. You have said some things about bonuses recently and you are concerned about excessive pay. Chancellor, could you talk a bit about your perspective on that, looking forward, because we may see it degenerate over the next few months?

Mr Osborne: Can I say two things? First, excessive pay in the financial sector creates perverse incentives at the best of times and we should be trying to curb it. We want more active shareholders-the statement from the Association of British Insurers yesterday was welcome-and we want more transparency for them. That is why we have published, for example, details of our plans to disclose the pay of the eight highest paid executives outside the board in any bank.

Secondly, this winter, we obviously face a very stressed financial system across the world. Bank funding costs are rising. It has become more difficult for banks all over the world to secure some of the funding they need. In that environment, we have had an explicit warning from the Financial Policy Committee, which we established on an interim basis in the Bank of England, and for which we will legislate next year. It warned us explicitly that when risks are building up in our economy, banks should use their earnings to build their capital position and limit the distribution of those earnings if their capital position is not sufficiently strong. In particular, they should be limiting what those in the financial world call compensation-pay and bonuses to the rest of us.

Banks would do very well to heed the Financial Policy Committee’s advice, what the Bank of England Governor said and what I as Chancellor am saying to them. We are doing this with plenty of notice, because the banks will be looking at their bonuses after the Christmas period.

Q264 Mr Ruffley: Chancellor, the potential output growth of the UK economy fell off a cliff between March and November this year, and was described as "a shock" by the OBR officials who came to see us yesterday. What went wrong?

Mr Osborne: That is not how I would characterise it.

Q265 Mr Ruffley: It did fall off a cliff, didn’t it?

Mr Osborne: Under its current chair, Robert Chote, and under Alan Budd, the OBR had judged that productivity growth would bounce back from the depths of the recession. They saw increasing evidence that that was not the case, including over the past six months. The data have caused them to reassess not only the past six months, but the last couple of years. That, of course, has had an impact on their view on the trend growth rate at present and in the future.

Q266 Mr Ruffley: Yeah, because they are also very conveniently saying that it will get back to 2.3%. That is their estimate of the long-run average. Is that what you think it is?

Mr Osborne: It is a perfectly reasonable forecast. I do not make forecasts any more: I have given that job to the Office for Budget Responsibility. I think that it is perfectly reasonable, on the evidence that we have to date, that there has been slower productivity growth in the past couple of years than one might have expected.

Q267 Mr Ruffley: I understand that: I just want to get back to the 2.3% figure. That is what the OBR is saying is the long-run average. It is saying that "we now assume that it"-the trend growth rate-"picks up gradually over the next two years as the financial sector and credit conditions normalise." That is what the OBR is saying. What do you understand by that? Will we get back to trend in two years by the financial sector and credit conditions normalising? Can you quantify that for us?

Mr Osborne: There has been no evidence to suggest permanent damage to the British economy from what has happened. There is plenty of evidence that the financial crisis has had a bigger impact than has been previously calculated by everyone and that it is causing a more prolonged recovery than anyone would have hoped, but I have not seen any evidence that there is permanent, forever damage to the British economy. I am sure we will come on to discuss this, but of course there is a very significant downside risk to this forecast from the ongoing situation in the eurozone, which is flagged up right at the front of this document and which I flagged up right at the front of my statement last week. If the euro crisis leads to a further deterioration of conditions in financial markets, that will have a significant impact on our economy.

Q268 Mr Ruffley: We sympathise with your problems and the economy’s problems, but can you just confirm to me-because this trend rate of growth is an important number, as we all understand-by what you would have to be out on trend growth for you to miss your fiscal mandate of fiscally neutral, cyclically adjusted current balance? What is the margin of error? It fell off catastrophically in several months and your target is very sensitive to getting the long-term trend growth rate accurate, is it not?

Mr Osborne: It is a very significant component. It is not the only component, so I do not think that you can isolate it in quite that way and provide the figure that you are asking me to provide.

Q269 Mr Ruffley: The OBR has provided it. It said that if output is lower by only three quarters of 1%, the Government would no longer be on course to achieve the mandate.

Mr Osborne: All other things being equal.

Q270 Mr Ruffley: Of course. Let me move on to your views about the trend rate of growth. What have you done in this autumn statement, and for that matter in your Budget last March, to raise the trend rate of growth of the UK? What measures?

Mr Osborne: Again, I would look at two sets of measures. The first is trying to increase the speed of the repair of the financial system. That includes moving to a new regulatory regime as fast as possible with as much certainty as possible, while getting the details of that regime right and returning banks that we own or part-own to the private sector, where possible. We have done that with Northern Rock, but I would not expect that to happen immediately with some of the other banks-in case anyone gets the impression that that is about to happen. That is very important, because what you are trying to do is clear balance sheets and get the financial system back to health. I suspect that that is the thing that we could do most effectively in the short term to help the trend growth rate over the next few years.

For the longer term growth rate of the country, I would say that we have taken a whole range of measures, not just in this autumn statement, but in the Budget and the like-which we can no doubt go on to discuss-on infrastructure, employment law, the tax system and so on. I think previous Chancellors-Conservative as well as Labour-have made a mistake in betting the farm that they are going to improve the trend growth rate of the economy. They have not done that as much as they had hoped and, as a result, they have sometimes got their calculations very badly wrong.

I would rather show, not tell. I would rather people see the results of the policies we have implemented and what they have done to the British economy and the help and improvements they have made, rather than gambling now on the outcome.

Q271 Mr Ruffley: A final question: to get the economy going in various quarters, it has been suggested that you might want to do some tax cuts, if they are matched and funded by further public spending reductions, over and above what you have already announced. For the record, have you ruled out any tax cuts in the short run, if they are funded by further public expenditure reductions?

Mr Osborne: I know I have announced the date of the Budget, but I am not going to announce the content of the Budget at this hearing. What I would say is that within the spending review totals-the tax and spending totals-I have set out, I have been perfectly prepared over the past couple of fiscal events to reduce some taxes or increase other taxes, reduce spending or increase spending in different areas. At the moment, there is a significant reduction in corporation tax taking place because of the measures I have announced. That is in a sense a funded reduction within the parameters of the spending review.

What I am not prepared to do is borrow additional money in a discretionary way to fund a tax cut. I simply think the risk you would be running with Britain’s fiscal credibility at a time like this is not worth it. In the end, a tax cut of, say, £1 billion, £2 billion or £3 billion-whatever people have been proposing-compares with the effect of a 1% rise on mortgage rates, taking £10 billion out of families, or adding £20 billion to the Government’s debt interest bill. If you compare that relatively small sum of money with the £3 trillion the Government are spending over the next three or four years, I do not think it is worth running the risk that that measure would have such a transformative effect that you would hazard your chances on the international debt markets and our country’s interest rates to pay for that tax.

Q272 John Thurso: Chancellor, can I ask you about access to credit, in particular for SMEs? Would you agree that SMEs are still finding it remarkably difficult to access reasonable credit?

Mr Osborne: I would say that the credit conditions are difficult. There is certainly a risk, if we had not acted, that they would have got more difficult, brought about in part by what is happening on the continent.

Q273 John Thurso: We have had evidence from the Bank of England and from the Federation of Small Businesses, and I am sure we have all had it in our own postbags, of the difficulties that SMEs have. Yet we have had the leaders of the major banks in front of us telling us that they are ready, willing and able to lend. There seems to be a complete disconnect between the banking boardrooms and the actual real small businesses in our communities. Has the Treasury done any work on why that is and what can be done about it?

Mr Osborne: I agree with you that there is a disconnect between what you hear from the banks and what you hear from the small business community. We have all had experience of that as constituency MPs. I am sure, of course, there is an issue with demand. Some businesses at the moment are just nervous; they look at the world, they look at what is happening across the channel. They are just anxious about the world at the moment. That lack of confidence means that they are not going out and borrowing money to expand their factory. That is why trying to resolve the euro crisis is the biggest shot in the arm the British economy could have this autumn, but I think there is also a lack of supply. There have just been too many pieces of evidence-too many stories people have told-of companies being charged more and being forced to put down far more collateral.

The interesting thing-the Bank of England Governor and I have discussed this, and he has this said publicly as well-is that he has had the same experience, which is that a lot of the survey evidence we get suggests that there is a problem with supply and cost of credit-of course, they are sort of two sides of the same coin-and that is why we have taken the decision to embark on credit easing.

Q274 John Thurso: How much is the lack of competition on the high street a problem, and could we not, since we own a couple of banks, consider breaking them up and creating more competitors, possibly parking their investment banks in a bad bank, setting them free?

Mr Osborne: First of all, I think there is a lack of competition. One of the objectives of the Vickers report was, as set by the Government, to look at ways to increase competition. They have measures to do that for customers-for example, switching current accounts-but also they recommend getting out on the high streets some challenger banks. That is why I took the decision I did, in part, on Northern Rock, although I also had very clear evidence from independent advisers that the value of Northern Rock would continue to fall if it remained in public hands. I also wanted Virgin Money out there on the high streets as a new bank. I am delighted that the Nationwide is going into small business lending. I am delighted that Handelsbanken is out there, lending money effectively to small businesses at the moment. One thing required by the state aid rules, and one thing agreed by the previous Government, was the dispersal of a number of Lloyds branches either to create, potentially, a new entrant or to enhance an existing player, and that process is happening as well.

We are absolutely keen to get new challengers out there, and we are prepared, in the case of the Lloyds branches, to use the banks where we have a Government stakeholding to try and achieve that.

Q275 John Thurso: Last question: how will you ensure that the proposed national loan guarantee scheme is effective? There were hallmarks with all the previous ones, where the last Government tried very hard to make it work, but the problem they came up against was the Catch-22 with banks when they won’t loan, but then are asked to loan through the loan scheme and they still will not lend, and very little money actually gets lent under the scheme. How will you overcome that Catch-22?

Mr Osborne: I would certainly agree with you that the previous Government’s experience was that this is a challenge. The enterprise finance guarantee was a perfectly good scheme launched by the previous Government-we are expanding it at the moment-but no one would claim that it has transformed the credit conditions in the economy for smaller firms. Equally, the efforts we have all made-both this Government and the last Government-with gross lending targets have helped, but again there is more we could do. That is why we have undertaken credit easing.

I would make two observations. First, I am trying not to make the best the enemy of the good. I said that explicitly in my speech. It is not normally-of course, politicians claim they are completely infallible, but I am trying to get a credit-easing scheme up and running as quickly as possible. That means it is not going to be perfect in every single respect, but it is more important to get it up and running and operating in the current credit conditions than to try and make it perfect in every respect.

Secondly, we are following a model that already exists and works, which is the European Investment Bank, which operates a small business lending scheme in Britain on a relatively small scale, but that has state aid clearance and there is a clear audit trail to make sure that the banks pass on the lower interest costs. I have taken that because it is a scheme that works and operates-people are familiar with it; it has the necessary state aid clearance-rather than trying to devise an entirely new scheme.

I also want to look at other options. There is a business finance partnership we have launched, which will have £1 billion in it to co-lend into debt funds alongside insurance companies, pension funds and the like. That is a new type of Government intervention and, therefore, it is more of a challenge, administratively and in policy terms, to get right. There are also ideas of partnership lending, which I think the Governor of the Bank has spoken about to this Committee, which is where Government literally co-lends to businesses alongside a bank, rather than, at the moment, what we are proposing, which is guaranteeing bank lending. That requires a whole new state aid process. It would take longer. There are all sorts of policy challenges there. We are working on that as well to see if it is a runner.

So, we are very conscious that these are complex problems-it is not normal for Governments to intervene in credit markets, but these conditions are not particularly normal-and where we have been able to use existing schemes, we have gone with the existing schemes, but I am absolutely clear that doing nothing is not really an option either. As I say, I am sure that there will be a hearing like this at some point in the future where you all say, "You didn’t get that detail right of the national loan guarantee scheme"-

Q276 John Thurso: I hope we will be saying, "Well done for getting 80% of it right." That is what I hope.

Mr Osborne: What I hope you will appreciate is that it is more important at the moment to try to get the scheme up and running and working, rather than getting every detail right. It is very important, by the way, that that does not mean, in any way, taking the eye off the audit ball-making sure that the banks are passing the lower cost of funding on.

Q277 Mr Mudie: I may have got you wrong, Chancellor, but you seem to be suggesting that the loans guarantee fund is going to compensate for the banks failing to deliver Merlin. Have I got it wrong?

Mr Osborne: No, I think the Merlin agreement was absolutely the right agreement for the last year-

Q278 Mr Mudie: But it has not worked.

Mr Osborne: No, I think it has worked, but-

Q279 Mr Mudie: The Governor said specifically in this room a week ago that they were lending less, and he was worried about it.

Mr Osborne: I think you have to ask yourself the question, "What would have happened without the Merlin agreement?" We have these large banks-

Q280 Mr Mudie: They might have loaned more money, as they did last year, than the Governor tells us they are lending this year. So Merlin has made the situation worse.

Mr Osborne: No, Merlin was based on gross lending targets, not net lending targets.

Q281 Mr Mudie: Yes, which was a mistake.

Mr Osborne: And the reason we chose gross lending targets was because the previous Government had tried net lending targets-I think in the year before I came into office-with the two banks that they owned or part-owned, so the ones that they, in theory at least, had most control over, and it had not worked. The previous Government had to come to the view that gross lending targets were a more appropriate measure.

We adopted the gross lending target and then extended it to all the major five banks. I think it has helped shield lending to small businesses in Britain from the global deleveraging of these large universal banks that are operating around the world. I think we have been able to protect-better than would have been the case without the Merlin agreement-lending to small businesses. I think some banks like Lloyds have gone out of their way to launch new campaigns and add new products for small businesses and made a real effort. I would say that, in the end, having a sort of annual negotiation with the banks about lending-

Q282 Mr Mudie: You could have made it two or three years. You have made it an annual event.

Mr Osborne: I thought it was better to look at the credit-easing options available to us, so I do not in any way resile from the Merlin agreement. I think it has been absolutely the right thing for the last year, but I think now we should move on to the national loan guarantee scheme.

Q283 Mr Mudie: Chancellor, I would like to move on to the regional situation. We in the north think you are running a London/south-east Government. You probably did not hear it, but I put a question to Danny Alexander yesterday in the Chamber, and I pointed out that the IPPR report said that it is anticipated that London and the south-east will recover by 2014, that Yorkshire and Humberside will take until 2018 to recover, and that the north-east will recover in 2020. Also, Yorkshire and the north-east will only recover in employment terms to the highest peak of the ’90s. What policies in your growth Budget do you think will actually make the north-east and Yorkshire recover sooner?

Mr Osborne: I am an MP representing a seat in the north-west of England, and what is clear is that our economy is geographically unbalanced. The fact I carry around in my head about this is that private sector employment in the west midlands fell in the decade before the 2007 crash. So, during that period, private sector employment in the west midlands actually fell-when the economy was in a boom that unfortunately led to a bust. So it was unbalanced and became more unbalanced, and the striking thing-I do not in any way impugn the motives of the Ministers in the last Government, because I think they were working very hard on the problem-is that the regional disparities increased during that period. The disparities between the English regions grew over the decade leading up to 2007. So that is a structural problem in the British economy. I think there are a couple of tools the Government has that make a real difference. One is the transport infrastructure and the commitment in here to projects, and you can look at the map on page 33 of this document-

Q284 Mr Mudie: I am glad you mentioned that though, Chancellor. Can I you break you off, because the lad from the IPPR who came to this Committee pointed out that 90% of the expenditure in that document on transport is going to be spent in the south-east and London, and the north, which I have described, only gets 7.6%? So if that is an example of rebalancing, it is certainly not going to do it. I would like you to have another look at it.

Mr Osborne: If you look at the projects, the road projects we have committed to and the rail projects like the electrification of the line across the Pennines, and you take into account the high speed rail line we are running up the spine of England, which is a fairly expensive project-no doubt, something that Members here have views on-you can see a commitment to try and reduce the economic distances. You can see it in my own constituency. There is now a direct train service to London. That has helped business in my constituency 200 miles away from London. It didn’t exist when I first became an MP.

Can I briefly mention the other couple of points? Second, I think you can take targeted interventions to help the private sector. That is what the regional growth fund is designed to do-to support the private sector out of the centre of London-and then third, and I know this is controversial, I think we need to look at local-facing pay, and that is what we are asking the pay review bodies to do.

Q285 Mr Mudie: Let me just take this second one, then I have two last questions that the Committee want me to ask. For the regional growth fund there have been 956 bids totalling £6 billion; 169 have been accepted, taking up the £1.4 billion the Government has put in. That was a yearly sum for us. This is a total programme apart from the addition. The scheme has been running for almost a year and of the 169 provisionally accepted only nine have been accepted. What on earth are BIS and the Government doing? You have £6 billion bids on the table. You only accept £1.4 billion and you spend a year when you agree 169 provisionally and there is only nine agreed.

I would just like you to think about that Chancellor, because this is a matter that you can write to the Chairman about. This Committee is most upset with you because last Budget time we raised concerns that a significant amount of the Budget appeared in the press before the Chamber or the Committee heard about it. Are you aware of any pre-briefing? Are you, Sir Nicholas, aware of any pre-briefing to media or leaks emanating from your Department before this Autumn Statement?

Mr Osborne: Can I just say one thing on the regional growth fund, which is that 50% of the projects have already started? The money is getting out the door and the projects are being supported. I will, of course, let Sir Nicholas answer, but let me just say this. I appeared on the-

Q286 Mr Mudie: Does he have something to answer?

Mr Osborne: We will hear what he has to say. I appeared on the Andrew Marr programme and I talked about the credit easing programme. That is something that was then in the statement on Tuesday. So if that counts as pre-briefing then, fine, of course, I appeared on that programme. There is no mystery about it. I was on the show talking about it. What I tried to be careful to do-I know that some Members had concerns about this-was to talk about some of the things that would never get any attention on the day, which I thought were important for business to hear, but were not significant, in the kind of classic sense, fiscal events.

Q287 Mr Mudie: Which of these do you admit to-

Mr Osborne: Hold on, will you just let me finish this point? What was not pre-briefed, or discussed by me in an interview or whatever, were the very significant fiscal decisions we were taking about the fiscal mandate, about public sector pay and about the spending totals for later in the Parliament-in other words, all the things you might classically associate with a Budget-like event or a fiscal event. Credit easing I had spoken about many times in Parliament. There had been debates on it in Parliament, and I was providing further details. It is perfectly reasonable, I think, and has been for the past 80 or 100 years in British politics, for politicians to explain policies that have already been discussed in Parliament and provide more detail in an interview under examination. What I would say is that the key fiscal events were all announced by me on the day.

Q288 Mr Mudie: Forty-eight hours before you made the forecast, the following were in all the Sunday papers: a hold on fuel duty rises, a hold on planned increases in rail ticket prices, a delay in the auto-enrolment of small firms’ employee pensions, an increase in the bank levy, detailed explanation of the credit-easing system, plans to encourage pension funds to invest in infrastructure projects, a freeze on tax credits and a crackdown on tax avoidance. I do not know why you bothered to turn up on the Tuesday. We could read it all beforehand.

Mr Osborne: First of all, some of that was absolutely pure speculation-for example, about fuel duty. There has been speculation about fuel duty for months, and indeed the House of Commons held a whole day’s debate on fuel duty, so it would be pretty surprising if in the weekend before the next fiscal event there was not speculation about whether I would do something about fuel duty. As it was, I am not aware that any newspaper had the announcement on fuel duty.

Q289 Chair: So when you tell us that something is pure speculation, we are supposed to interpret that to mean that it was not pre-briefed.

Mr Osborne: In the run-up to any Budget or autumn statement that I have ever paid attention to over the past 20 years, there is of course speculation about what will be in it. That is not really surprising. On the uprating of benefits, I read on the front pages of national newspapers the assertion that I was going to freeze all working benefits. That is not one of the things you have read out, but it was on the front page of some national newspapers, and it was never in any draft plan that I had.

Q290 Chair: We are not worried about newspapers getting it wrong, Chancellor; we are concerned about the measures that were described in detail that they got right.

Mr Osborne: As I say, we try to run a tight ship, and I am not aware of any leaks in the classic sense of documents that went awry.

Q291 Chair: But there was some pre-briefing?

Mr Osborne: Well, what I would say is-

Chair: Is that a yes or a no, Chancellor?

Mr Osborne: If you take pre-briefing to mean that I went on a television show and talked about credit easing, or that the Deputy Prime Minister on the Friday was talking about the help we wanted to provide to the young unemployed-fine. The Government are operational seven days a week.

Q292 Chair: Apart from public statements on the television and the radio by senior politicians, there were no other communications of what was going to be in the autumn statement, or amplifications by staff in the Treasury or by your advisers?

Mr Osborne: I am not aware of the communication of-

Chair: Was that a yes or a no? I just want an answer, yes or no, because that is the implication of what you just said.

Mr Osborne: The Government have press officers and the like, of course. The way I put it is that the key fiscal judgments in this autumn statement-the things that, by the way, have completely dominated the discussion ever since; the things that Parliament wanted to know about; the things that I was questioned on after I gave the statement and the things I was questioned on yesterday in the debate-were kept to the statement and were not pre-briefed. Parliament was told first, as is properly and has traditionally been the case. Those key fiscal judgments were announced first to Parliament, and that is the way it should be.

Chair: I think you need to know that there is deep dissatisfaction-in parts of the House of Commons, at any rate-about this style of government that involves pre-briefing, so I expect that the Committee will want to come back to it.

Q293 Andrea Leadsom: I have three questions, which I shall try to rattle through. The first concerns the fact that the OBR has said that the outlook for bank lending is uncertain, primarily because of the crisis in the eurozone. It says that bank lending is grinding to a halt because banks are wary of lending to each other. Can you give us your thoughts on how UK banking can return to normal without the eurozone crisis being settled once and for all?

Mr Osborne: Obviously, the UK banking system, like those of America and other countries, is affected by what has happened in the eurozone, particularly the increase in bank funding costs. It would certainly make life a lot easier for British banks and the British economy if that crisis were resolved in the sense that people had confidence that there was a set of solutions that would work, even if they did not produce results overnight. I do not think that anyone is expecting an overnight solution to the crisis. What they are hoping for and expecting at the end of this week and, no doubt, with other announcements, is a path that gives confidence to international investors to purchase the debt of eurozone countries, for example, or to provide unsecured lending to eurozone banks and the like.

Q294 Andrea Leadsom: Do you think that the Governor has done enough in terms of the cheapening of dollar swap rates and the providing of extra liquidity, and does he discuss that with you? Has it gone far enough to protect British banks in the short term from a European banking crisis as a result of the eurozone crisis?

Mr Osborne: I do not want to-and I won’t-intrude on areas that are properly for the central Bank, but I note, as the Committee no doubt has, that there has been co-ordinated action from central Banks, particularly on dollar liquidity. Also, yesterday, the Bank of England set out the details of its new liquidity facility, which can be operational if needed. Those are two welcome steps.

Q295 Andrea Leadsom: Does the Governor discuss those measures with you before he implements them?

Mr Osborne: Well, I am certainly aware of both measures. I am always very clear about the division of responsibilities between the two of us, so I am kept properly informed, just as I keep him informed of the key decisions that the Treasury has taken.

Q296 Andrea Leadsom: Slightly to digress from the autumn statement, we on this Committee are very conscious that the Governor has been given an exceedingly powerful position; he is described as the most powerful central banker in the world. Are you entirely happy that he has failed to meet his mandate for 2% inflation-over nine letters, I think-with very real consequences for people in the real economy, with inflation running at 5% and pay cuts across the board? Are you happy that with that disparity, the Governor is still okay not taking more direct measures to meet the mandate that you have given him?

Mr Osborne: Obviously, the Governor and the other members of the Monetary Policy Committee are completely independent. It would be inappropriate for me to suggest action to them, but I have complete confidence in all of them and in their ability to meet the mandate that has been set out for them. An interesting feature of the OBR forecast-completely independent of the central Bank-is that it has come to a similar view to the Bank of England about the causes of the above-target inflation and the external inflation shock, for example, from the high price of oil on agricultural commodities. That is documented in the OBR forecast. Indeed, the OBR’s inflation forecast is pretty similar to the Bank of England’s. It sees inflation falling next year and returning to target. If you regard that as an independent audit not only of the Government’s broader economic performance but of the Bank of England’s performance on inflation, you can see that there is a lot of agreement with what the Bank of England itself has been saying.

Q297 Andrea Leadsom: Do you think the Governor is accountable enough? Clearly, we have had a couple of years when the Bank failed to meet the 2% target-albeit for good reasons-but there are very real consequences for the economy. Do you feel comfortable that there is enough accountability within the Bank of England for those very real consequences?

Mr Osborne: You always have to protect and preserve the independence of your central Bank and its Governor. That is a key feature of monetary policy independence. The Bank Governor is not like politicians who can lose their job any day. That is absolutely the proper protection for an independent central Bank.

The Governor is, however, accountable. He can say this for himself, but I will say it for him: he is very good in his regular attendance before this Committee and others. He appears far more often, certainly that I am aware of, than any other central Bank Governor appears before their legislature to answer detailed questions put to him. Indeed, he brings members of his MPC to appear before you as well. He is accountable through Parliament for his decisions, while at the same time his independence is protected.

Q298 Andrea Leadsom: Okay. My final question is a slight change of subject. I am delighted about the Northern Rock sale to Virgin Money, the fact that it is to have its headquarters in the north of England and that it has a female chief executive, which is excellent news for more women in the boardroom.

On a more serious note, is it not the case that we would do much better in Britain in the longer term if we had far more smaller banks that were just focused on personal current accounts and SME lending, rather than this oligopoly of vast banks? With that in mind, would you look again at the idea of full account portability? The opportunity for new entrants in the banking market that it would deliver goes beyond what the Vickers Commission is talking about. It instead moves to a shared infrastructure where every bank account can be easily switched from one bank to another.

Mr Osborne: First of all, the British banking system has become too consolidated. That is partly forced upon this country by the crisis and by the difficult decisions that my predecessor had to make about Bradford & Bingley and other building societies and banks. It is quite concentrated. We are trying to get new entrants up and running. For example, the enterprise finance guarantee scheme I was talking about earlier has been extended to Metro Bank in order to make it a bigger player. Nationwide is getting into the small business lending area, which is great news.

With regard to Northern Rock, I repeat that I had very clear and independent advice that the value of Northern Rock would continue to decline, and that it would be less next year than it was this year. I had to make a value for money judgment on that. I also wanted to get a new entrant out there in the form of Virgin Money. We want the Lloyds divestment to proceed so that we have another significant load of branches out there, either with a new entrant or a challenger. We are trying to use whatever tools are available to us to create that diversity.

On the issue that was raised about competition, I am happy to look specifically at the proposal you make. The Vickers report is very good on competition and current account switching. It has not had any attention because everyone has focused on ring-fencing and the like. I completely understand that. The idea that you can basically switch your current account in the space of a week, and all the direct debits and everything will follow, with the bank required to do that on your behalf, makes it far easier to switch current accounts than is the case.

Q299 Andrea Leadsom: Yes, but if I can press you on account portability-it would be instant.

Chair: We want a very quick reply.

Andrea Leadsom: You could switch your bank today, tomorrow and the next day. If you wanted, you could take your bank account number with you. It is something that this Committee has raised with the chief executives of the big banks, who are not keen on it because it would totally wreck all the barriers to entry that they have neatly erected. Vickers did not consider it fully.

Chair: Andrea has got in her plug for an important proposal.

Mr Osborne: I am happy to write to the Committee on that specific issue.

Q300 Chair: While you are looking at these various issues, I hope you will find it worth looking at the competition report that we produced, which covered much of the same ground and had a number of other proposals that are not in Vickers.

Mr Osborne: Yes.

Chair: Perhaps they might form part of your response when you get round to that.

Q301 Stewart Hosie: Chancellor, we all appreciate that the forecast is the OBR’s and is not yours, but do you not have any anxieties about setting out your economic choices based on a forecast that sees business investment grow by 7.7% to an extraordinary 12.6% a year, every year, from 2012 to 2016?

Mr Osborne: It is an independent forecast. I think it’s a reasonable one, partly because business investment grew more strongly than that, actually, in the period after the early 1990s recession, from 1994 to 1998. Secondly, business investment is growing off an incredibly low base, because of the collapse in 2008-09. The potential for a reasonably large percentage is greater.

Q302 Stewart Hosie: It is growing from that very low base of 2008-09, but the growth over the last two years since then was 0.8% in 2010 and -0.8% in 2011. The circumstances of recovery from a low base are unchanged. Why are you confident that we will get these rates of growth for 2012 through to 2016 when we did not get them in the last two years from the very low base that you described?

Mr Osborne: As I say, it is the OBR’s judgment, and I know that you were questioning them on it. I think, like them, that it is a reasonable assumption. If you look at business intentions, they are clearly quite pessimistic in the short term because of the euro crisis, but there are balance sheets that have got money on them, which is one of the unusual features of this recovery. If there can be a reasonable resolution to the euro crisis, I think you will see the money coming off the balance sheets and investment taking place. There are investment opportunities. With all the sorts of measures that I could detail to you-the various tax changes that we are making and the various attempts to get pension funds investing in infrastructure-there are lots of ways we are trying to encourage that investment. As I freely said earlier, however, if there is not a satisfactory resolution to the euro crisis, confidence will remain damaged and as the OBR put it, the outcome for the UK will be much worse.

Q303 Stewart Hosie: But it’s not just the eurozone that is the problem. The forecast from the OBR also talks about slower trade growth in the near-term and the downward provisional forecast of world trade growth. It also talks about substantial provisions to US output being down and so on. It is not just the eurozone.

The real question I have is about next year. The real GDP growth is at 0.7%. Some 0.6% of that is forecast as business investment. If business investment is as sluggish as the aggregate 0% of the past two years, it is similar to the question David Ruffley asked: you come perilously close indeed to missing both your fiscal mandate and your supplementary target, based on one year. Does that not cause huge concerns that there is such an over-dependency, both for next year and for the next five years, on business investment?

Mr Osborne: I think there has been, in the latter part of this year, some forestalling. Some investment projects have not gone ahead because of the very uncertain international situation. This is all predicated on there being a reasonable resolution to the euro crisis. If there is a reasonable resolution, by definition, some of that forestalling will end and projects will go ahead that would otherwise have gone ahead this year.

Secondly, I note that the OBR say in the document that the investment share of GDP is still relatively low by historical standards. I do not think they are being wildly optimistic. This is their best central forecast.

Q304 Stewart Hosie: They are not being wildly optimistic, I appreciate that. As I say, however, the OBR has also spoken about issues other than the eurozone. What concerns me is that, although there is a contribution to GDP growth from net trade, we have not seen the penetration into many markets that we would have expected from exports, which are a driver of business investment, even with a 25% fall in the value of sterling. We have not seen that even though that fall has been happening for some years. What have we done wrong in terms of export-led recovery or exports generally that we might do right now to get the business investment that the recovery in the forecast depends upon?

Mr Osborne: I think the export performance was, until quite recently, strong, and you saw big increases in exports. Also, it was encouraging that we are doing better in some of those BRIC countries that we have not done so well in previously. For example, I think exports to China are up 40% in the last 12 months, which is impressive.

Q305 Stewart Hosie: From memory, I think that makes it 2.3% for exports. It is a very low base.

Mr Osborne: I know, but if this country does not get into the business of exporting to China, it is going to be out of business. Indeed, on the day I became Chancellor, we were exporting more to Ireland than we were to Brazil, Russia, India and China put together. So we have put a huge export promotion effort into trying to get exports to big emerging economies, but all the survey evidence for the last three or four months-certainly since the summer-and all the PMI surveys have shown that the thing that has been really hit is exports to the eurozone. You can isolate that within these numbers, and, since 40% of our exports are to the eurozone, that has taken a hit. It is deeply-to use the Chair’s word at the beginning-annoying that that has taken place, but there is no point in being annoyed about it. You might as well just get on and try to expand our other export markets, and try to do our part to resolve the eurozone crisis.

Q306 Michael Fallon: Turning to local pay-page 37 of your document-is the idea to get local pay up and running by April 2013?

Mr Osborne: Today, I have written to the chairs of the pay review bodies and asked them to come back to me by 17 July next year, from memory, and to provide me with their advice on local-facing pay. That would give us the opportunity to introduce it for the 2013-14 pay round.

Q307 Michael Fallon: Can you confirm that this is local pay? It is often called regional pay. For example, in the north there are high-cost areas, such as your own Cheshire compared with Manchester, or north Yorkshire compared with Darlington or whatever. These are local labour markets that you want pay to reflect, is that right?

Mr Osborne: We are asking them to look at local markets. I have explicitly used in my letters today the word "local", not "regional". There is something of a model here to look at, which is that in 2007 the Ministry of Justice introduced local-facing pay in the Courts Service. They did it not on a crude regional basis, but on local pay markets that, for example, put Manchester, Edinburgh and Brighton all in the same zone and that put Norwich, Exeter and Newcastle-upon-Tyne all in the same zone. The previous Government had, if you like, an experiment with local-facing pay and did it in a way that was sensitive to the fact that, as you were just pointing out, there can be considerable disparities within regions as well.

Q308 Michael Fallon: Is the suggestion that these local pay rates should reflect the supply of labour in each market, or the associated costs of labour and the fact that housing is cheaper in these particular markets?

Mr Osborne: I have asked the pay review bodies in my letter, which I will certainly make available to the Committee and publicly, that they should take into account the need to, as I put it, "recruit, retain and motivate" suitably able staff in the public sector, that they should look at the difference between public and private sector wages in a particular area and that they should look at how one should go about this geographically when looking at areas to determine pay.

Q309 Michael Fallon: In your document, you say that the Minister for the Cabinet Office will now review how this might be introduced in civil service departments. If it is already happening in the Courts Service, why do we need Mr Maude or whoever it is to review it all? Why can’t you just get on with it?

Mr Osborne: Civil service pay is set somewhat differently from pay in, for example, the NHS or the education system. So he has a role. I think it is perfectly reasonable for him, too, to consider the evidence. What we are asking for here is for the pay review bodies-there are various parts of the civil service and I have written to the higher salaries pay review body as well-to look at the evidence and see how this could be introduced. I think it is perfectly reasonable within the civil service as well to look at the evidence and to see how to get this right.

Q310 Michael Fallon: You then say in the final bit of this document, "Secretaries of State may then choose to take forward recommendations for their departments". It is not really the smack of firm government is it? Is this going to be optional?

Mr Osborne: Let’s see what they say. The system is that the pay review bodies make recommendations and it is up to the Government, through the proper procedures that we have, to make the decision. But I don’t want to pre-empt that. Let’s see what the pay review bodies say. I think this is a very significant reform that could help the public sector in many parts of our country and help the private sector in many parts of our country to recruit and retain staff. I think it is a significant move forward. I hope it will be welcomed by this Committee. Certainly, many, many observers of the British economy-think-tanks in this country but also external observers-have pointed to this as one of the reasons for the regional disparities in our economy that I was talking about to Mr Mudie. I think it is good that we are initiating this process.

Q311 Michael Fallon: I just wanted to be clear that it was not going to be entirely optional for different Departments.

Mr Osborne: Obviously I am interested in doing this, or else I would not have asked them to look at the evidence. But let us hear now from them and let us hear their evidence.

Q312 Chair: This is an important point. After all, we do not need to look into the crystal ball; we can read the book. Departments are notoriously reluctant to implement this stuff. So I hope you’ve got a contingency plan in place which involves a bit of volunteering if we finally choose not to do this.

Mr Osborne: All members of the Government are volunteers.

Chair: We will be keeping an eye on this one, Chancellor.

Q313 Mr Love: Chancellor, you have spoken about accountability several times during this session. As a result of the autumn statement we discovered that we are going to have to borrow an additional £158 billion. To meet your fiscal mandate-I emphasise the phrase "your mandate"-there is going to have to be an additional £8 billion and then £15 billion austerity in 2016-17. According to the Governor of the Bank of England, whom you mentioned earlier, we are currently living through the steepest decline in living standards since the 1930s. What do you have to say about your stewardship of the British economy?

Mr Osborne: I would say that, faced with a record budget deficit that no Chancellor has faced in the peacetime history of this country-and no Finance Minister in the G7 or, indeed, the G20 is facing-I have had to make, with the support of the broader Government, difficult decisions to get that budget deficit down. You say we are borrowing more; actually, we are borrowing less. Borrowing is coming down. That is quite an important point to make in this debate. The deficit is coming down. Frankly, this country faced no other choice, as has been clear not least from my predecessor, who in his memoirs made it very clear that he was saying internally before the election that these sorts of decisions would have to be taken by a Labour Government if they were re-elected. Indeed, he made it very clear that he would have increased VAT if he had remained Chancellor after May last year.

Q314 Mr Love: I won’t quibble with you about the additional borrowing. The figures are in the autumn statement for everyone to see. Let me turn to an issue that Mr Hosie and Mr Ruffley talked about-growth-and whether we will see an improvement in growth in 2013-14. The jury is still out about this. We are currently flatlining and quite a lot of forecasters are suggesting that we might have a short period of recession at the start of 2012. Are you concerned about that, and what steps are you taking to address low growth in the next few years?

Mr Osborne: Of course I am concerned about the broader economic situation. I cannot imagine there was a Chancellor-certainly, no Chancellor I can remember-who said publicly that there was a prospect of a recession if recession came to the rest of the European continent. I said that very clearly in my statement last week. We are doing everything we can to try to get the British economy and European economies moving forward. I have said, and I will not repeat myself, that the biggest shot in the arm the British economy could have this autumn would be the resolution of the euro crisis.

We are also taking measures, whether it is credit easing to try to help the supply of credit in the economy, the Bank of England’s quantitative easing programme, the measures that we are taking to make our business taxes more competitive-this country has just re-entered the top 10 on the list of the most competitive places in the world to do business, which is a good thing-or the investment in infrastructure and education. We are doing absolutely everything that we can with the very, very difficult set of cards that I picked up at the table.

Q315 Mr Love: Our banking system is not functioning effectively. Are you concerned that we could repeat the problems that have dogged Japan, where a different type of banking problem resulted in the country’s spending 10 years flatlining? Isn’t there a real concern that these problems in the banking system may last for much longer than has been suggested? We are being too optimistic, in effect. The OBR, in particular, sees growth returning after 2013 to pre-recession levels, but I think there is some question over whether that is likely to happen.

Mr Osborne: One of the lessons of the situation in Japan is something that I alluded to earlier: that you want as quickly as possible to repair the balance sheets of the banks and recognise the losses, and not to think that will just come good by itself. There has been an enormous amount of work done in the British banking system to recognise losses and deal with them. Japan is also a lesson to us all: if you think that the answer is simply to borrow more and more money, and build more and more things, that is not actually the answer to the country’s problems. There is no shortage of bridges, train lines and roads in Japan, because they have built enormous amounts of them. I am all in favour, as is clear in this document, of building bridges, train lines and the like where I think they make a real difference to local economies, but if you think that just more and more spending, increasing your debt-to-GDP ratio ever higher, is the solution to the kind of situation we are in, maybe Japan is a salutary lesson.

Q316 Mr Love: Quite a lot of rather eminent forecasters and economic pundits are suggesting that a mild fiscal stimulus might help. That is outside the range of the political debate that goes on in this country-but I will not press you on that, because I think your views are well known. Let me come to the vexed question of the output gap and how your future economic choices may be somewhat limited by technical changes in what is a very esoteric subject. The OBR was at great pains to say to us that this was its best judgment, but it was a judgment, yet we could be facing even greater austerity as a result of changes in the output gap. Does it not concern you that your fiscal mandate is subject to such vagaries when nobody really knows what the level of the output gap is?

Mr Osborne: I think you have to make some assessment of what will happen to the deficit as the economy grows, because that then gives you an idea of how much work you have to do through discretionary action to try to bring the deficit down. It is sensible to try to make an assessment of the structural deficit, albeit with all the challenges that we are aware of.

I think important lessons have been learnt in this country over 30 years. I am perfectly prepared to acknowledge the role of the Labour politicians in some of this work over the past 30 years. We now properly distinguish between current and capital spending, and I think that that is a good thing. There will always be a grey area: is the investment in teacher training a long-term investment in the country’s future, so should it be classified as capital spending or not? You will always have a grey area, but basically we try to distinguish between capital and current spending. Our fiscal mandate is for current spending.

Secondly, I have not been asked about this yet, but we have it rolling forward, because I think you always have to try to anchor your medium-term public expenditure plans. Thirdly, we have it structural, to try to assess what we have to do through discretionary action. Now, I think that we have improved the structural element of this from the fiscal rules of the previous Government, which also had a structural element, because we are not looking at backward dating of the cycle, so that a change in the view of the economy in 1997 made in 2007 allows you to do things in 2008-we have got rid of that, and of course we have an independent body to verify it, which is another crucial difference.

Back-stopping and alongside all of this, we have a very specific debt target, which is anchored in one year, to get the debt to GDP ratio falling by 2015-16. We have deliberately got both measures, so one is rolling forward, is based on current expenditure and has this estimate of the output gap as part of it-we have set up an independent body to do that estimate for us-but alongside that is a debt to GDP ratio, and everyone knows how to calculate a debt to GDP ratio, and a very fixed year when we are required by that target to get that ratio.

Mr Love: You are sailing very close to the wind with this supplementary.

Chair: I think you probably are sailing quite close to the wind. John Mann.

Q317 John Mann: Thank you, Chairman. I will be happy to have specific answers as well, Chancellor.

It is "an admission of failure" and "the last resort of desperate governments when all other policies have failed"-do you recognise those words, Chancellor?

Mr Osborne: Well, I think I said them.

Q318 John Mann: You think?

Mr Osborne: I just want to make sure. I am trusting you to have read them out precisely and accurately.

Q319 John Mann: I am sure both that you said them and that in 2009 you were talking about quantitative easing, but less than five minutes ago you stated, on quantitative easing, that, "we are absolutely doing everything we can". I wonder if you could tell us precisely what month it was when you changed your view on quantitative easing.

Mr Osborne: At the time, the Government, which was of course the previous Government, did not have credible fiscal plans, so at the time there was a huge amount of speculation about the country’s credit rating and its future interest costs. We had warnings from the IMF, the OECD and others, including British business groups and the like, that quantitative easing in the absence of the Government also having a credible fiscal plan was, as others put it at the time, "a leap in the dark", so-

Q320 John Mann: If you had said that, Chancellor, that is what I would have read out, but your statement was absolute. If you are not able to tell us-

Mr Osborne: When you are the shadow Chancellor, you have to distil this wisdom into a single sentence for the television.

Q321 John Mann: Let’s keep on economic theory, rather than opportunist political statements.

Mr Osborne: I’m looking forward to that.

Q322 John Mann: Is there such a thing as too fast a deficit reduction, in your mind?

Mr Osborne: Yes, obviously. If I were trying to eliminate the entire deficit in the next 12 months, which in theory you could do, that would be too fast.

Q323 John Mann: Where would that line be drawn?

Mr Osborne: The judgment I have made is that the pace of deficit reduction that we have set out and the rules that we have anchored it around are the appropriate ones. Within that, as I say, we use a structurally based mandate, but we also have the debt target to provide some reassurance to investors that we are serious about our intent.

Q324 John Mann: So it is a question of judgment. You said earlier this afternoon, "I am accountable"-direct quote-and, "I do not in any way duck my responsibilities". If the United Kingdom were to lose its triple A rating while you are Chancellor, will you immediately resign?

Mr Osborne: No, I am not going to get into speculation about this country’s future credit rating, or indeed, my future actions.

Q325 John Mann: It is not speculation. It is a question on accountability.

Mr Osborne: I am accountable to Parliament.

Q326 John Mann: So you are not prepared to say that if this country lost its triple A rating, you would be held accountable and would resign.

Mr Osborne: I am doing everything I can to ensure that this country has credibility in financial markets. Actually, as it happens, the one country in the western world that has seen its credit rating improve in the last 18 months is the United Kingdom, when we came off the negative watch that one of the agencies put us on.

Q327 John Mann: And presumably that is in your eyes why you have not resigned so far. If it goes down, will you resign?

Mr Osborne: I am not going to get into speculation about the country’s future credit rating.

Q328 John Mann: So accountability is a political judgment, is what you are saying to us.

Mr Osborne: No.

Q329 John Mann: Like your facts. A couple, to qualify for working tax credits, can earn up to how much?

Mr Osborne: I don’t have the exact number.

John Mann: You don’t have it, but-

Mr Osborne: It depends-

Q330 John Mann: Give us an estimate. Give us a guess.

Mr Osborne: I’m not going to give you a guess.

Q331 John Mann: Give it to the nearest thousand.

Mr Osborne: I’m sorry, there are so many components of eligibility for the working tax credit, such as the number of children you have, the-

Q332 John Mann: What’s the maximum someone can earn?

Mr Osborne: I don’t have that number in front of me, but no doubt you will tell me.

Q333 John Mann: But give us an estimate.

Mr Osborne: I’m not going to give you an estimate.

Q334 John Mann: Is it £10,000? Is it £12,000, or £15,000? You are the one making the decisions on such matters, but you do not know the figures.

Chair: Have you got a question, John?

Q335 John Mann: I asked the question and I was waiting for the answer. Perhaps I should throw in a supplementary: who said, "Just over the horizon lies the Britain we are trying to build"?

Chair: I might have a go at that. Just about every single Chancellor since the war.

Q336 John Mann: I am sure you recognise that from a year ago and yet, you are cutting the working tax credits for families earning up to £17,700 a year. Let me ask you about gilts.

Chair: This will be one last question, John. Then we will have to move on.

Q337 John Mann: I am waiting. I would like to hear one first answer, if I may, out of these, Chairman.

Let me ask about gilts. Of the gilts since you have been Chancellor, how many have been bought by foreigners in one form or other?

Mr Osborne: I think about 30% of our gilt holdings are held overseas.

Q338 John Mann: And the other 70%?

Mr Osborne: They are a mixture of pension funds and others who buy gilts.

Q339 John Mann: What about the Bank of England?

Mr Osborne: Well of course its quantitative easing programme means that it has bought north of £200 billion.

Q340 John Mann: Do you think there is some correlation between price and quantitative easing then?

Mr Osborne: I certainly hope so, because that is one of the purposes of quantitative easing: to bring down the-

Q341 John Mann: Let me reiterate my first question. In 2009, you stated, in relation to quantitative easing, some fairly stout words about it being "the last resort of desperate governments when all other policies have failed". Now you are strongly in favour of it. What has changed in that period?

Mr Osborne: As I said, you have a Government that have a credible fiscal policy. That is a massive difference. That enables monetary policy to be loose, in the way that of course it is, and in a way that anchors inflation expectations, anchors investor confidence and anchors people’s view of Britain’s ability to pay its debts in the world. There is a huge difference. That is why people out there in the world are not alarmed by the policy decisions we have made. If anything, as you have been saying with the gilt rates, people have confidence.

Chair: There are some big questions surrounding the QE programme and we will come back to those both at the time of the Budget and, of course, with the Governor, who is running the programme. It is somewhat tangential to the autumn statement.

Q342 Teresa Pearce: Last week, we heard that it was your belief that employment regulations are a barrier to small companies employing people, and you have made the proposal that businesses that employ fewer than 10 people may be exempt from certain regulations. However, the British Chambers of Commerce surveyed 2,000 companies that employ fewer than 10 people and none said that employment regulations were a problem or a barrier to taking people on. If those 2,000 companies do not think it is a problem, why do you?

Mr Osborne: I do not have that survey in front of me. Certainly, every survey I have seen of business opinion in many recent years has been that the burden of employment regulation is one of the things that makes life more difficult for those businesses and one of the reasons that deters them from hiring new people. Specifically on the issue of the proposal for compensated no-fault dismissal for firms with 10 employees or less, what we have initiated is a call for evidence. No doubt we will receive evidence-perhaps you will submit some yourself. That is the stage we are at with that proposal. It is not something we are introducing right now; it is something on which we are calling for evidence on its introduction.

Q343 Teresa Pearce: But your personal view, from the evidence you have heard, is that it is a barrier.

Mr Osborne: The evidence I have seen is that the cost of employment in this country is very high compared with many of our competitors outside western Europe. As a country, we have to earn our way in the world, and some of the things we thought this country could afford, this country cannot afford. I think some of the measures we have taken already-for example, extending from one year to two years the probation period for unfair dismissal claims, and introducing for the first time fees for taking a case to an employment tribunal that you only get back if you win, to deter unrealistic claims-get the balance a bit better between the rights of an employee and of a business not to be sued out of existence, and the rights, indeed, of an unemployed person to get a job.

Q344 Teresa Pearce: Businesses in my area tell me that the barrier to them taking on more staff is not how easy or difficult it would be to get rid of them, but actually where their next contract is coming from. Are you not concerned that the picture that has been painted here of small businesses having a work force of unsackable bad apples is bad for business?

Mr Osborne: No, that is not how I would characterise it. We have been talking for the past hour or so about trying to increase demand in the economy and trying to increase confidence. Those are very important to increasing employment. I am not saying that the only barrier to more jobs being created in Britain is employment law, but I think employment law has got too costly and burdensome and we are making sensible changes to it that have been recommended to us by business organisations and others. As I say, some we are actually doing, and some we are consulting on. This country has to understand that we have got to earn our living in the world. Businesses have to be profitable if we are to have well funded public services and jobs.

Q345 Teresa Pearce: Two more questions: do you agree with the CBI’s proposal that the minimum wage for young people should be capped? They have suggested it should be frozen for the next few years.

Mr Osborne: If I had wanted to make changes to the minimum wage arrangements I would have done so.

Q346 Teresa Pearce: So it is possible.

Mr Osborne: No, I don’t think you can read that into what I am saying. I have not made changes to the minimum wage proposals. I have absolutely no plans to do so. I assure you that I do not have sitting in my ministerial in-tray any proposal on the national minimum wage either for young people or for anyone else.

Q347 Teresa Pearce: Okay. My final question was raised about Northern Rock. Northern Rock has been sold to Virgin, and Virgin Enterprises have taken their operations offshore for tax purposes. Did you seek any assurances from them during the negotiations that they will not do the same with Northern Rock?

Mr Osborne: First, I do not and should not comment on the tax affairs of individual companies.

Q348 Teresa Pearce: But on Northern Rock, you agreed the sale. Was there any discussion of future-

Mr Osborne: Virgin Money was a perfectly proper company to buy Northern Rock. By the way, the Permanent Secretary also has to sign off on sales like that. On specific tax deals, I know they have been in the press recently, and we are investing more money in tax avoidance. We are looking at what we can do to improve the transparency of the way HMRC conducts its business with large companies in this country, but we want large companies in this country creating jobs and paying taxes. This is a point raised by the Public Accounts Committee. We all have to think very carefully before we get into people like me answering questions on specific tax arrangements for companies. It is not that far a slope before you start saying, "Let me have a look at Mr Hosie’s company" or "Let me have a look at Mr Garnier’s company or Lord Thurso’s estate up in Scotland." We would be taking a very dangerous step.

Q349 Teresa Pearce: I think you misunderstand me, Chancellor. I am not asking you about Virgin Enterprises going offshore for tax purposes. I am asking you whether any assurances were sought on the sale of Northern Rock. Was there any discussion at all?

Mr Osborne: We have made public the details of our agreement with Northern Rock. It is there for all to see. Both I and the Permanent Secretary are very happy to be held accountable for that.

Sir Nicholas Macpherson: Just to add to that, Virgin Money has made it clear that the headquarters are going to be in Newcastle, not in Liechtenstein, so that is a good start. Secondly, the National Audit Office will be all over this deal. I am very happy in my role as accounting officer to be held to account for that.

Q350 Chair: Was that actually a no, Chancellor? No, there are no assurances?

Mr Osborne: The arrangements are all there in the documents.

Q351 Chair: If they are not in the documents, there are no assurances?

Mr Osborne: Sir Nicholas has talked about the decision by Virgin Money, which we were aware of in advance of the sale, to locate its headquarters in Newcastle.

Q352 Mark Garnier: Chancellor, turning to the national infrastructure plan, specifically with reference to pension funds where you have a memorandum of understanding regarding £20 billion worth of investment. Can you expand on that memorandum of understanding?

Mr Osborne: The purpose has been to try to get British pension funds to invest more in British infrastructure than they have been doing recently, or have done historically. It struck us that Canadian and Australian pension funds and the like have been very happy to invest in Birmingham airport or indeed High Speed 1 to the channel tunnel, but we have not persuaded British pension funds to do that on a similar scale. We have spent quite a bit of time talking to the industry and we identified some issues that they faced, part of which flows from the structure of the industry in Britain, where pension funds tend to be a little bit smaller, and they feel unable to invest in the information they need before they make these investments.

With the memorandum of understanding, we have worked with two groups of pension funds in the United Kingdom to try to create some common platforms whereby they will be able to invest not just in infrastructure that has been built and from which there is a revenue stream, but in building infrastructure in the first place.

Q353 Mark Garnier: I am interested in seeing the plans you have to expand on that. It strikes me that the one thing pension funds really require is very low-risk investments. Certainly there are a lot of examples around the world, particularly in the far east, where I have some experience, where, for example, a gas distribution network can be considered an extraordinarily low-risk investment. It strikes me that there is an opportunity for quite a lot of investment from the private sector. What I am really trying to get from you, Chancellor, is what work you have done specifically to identify those very low-risk opportunities, and what work you will be doing to identify slightly less low-risk opportunities that might be more appropriate to, say, the ABI or the unit trust and investment trust market.

Mr Osborne: We are looking at all the different projects. Some have absolutely assured revenue streams, and there are others where we have been prepared to offer a Government guarantee, such as the Thames tideway scheme, which is an extremely large and expensive tunnel that will help London’s water supply and sewerage system. With the A14, we are exploring an interesting avenue for upgrading significantly an existing road and using tolling on the road. We are looking into the potential for doing that, in discussion with local people and local councils.

Those are things with pretty secure revenue streams, which will provide something more akin to the low-risk investment that you are talking about. There are higher risks to other projects. We are very prepared to be imaginative and overrule some of the classic objections Government have to getting involved in this area. I think the opportunity is that there is a vast sum of money out there in the world looking for low-risk investments with better returns than UK gilts, US treasuries or German bunds.

Q354 Mark Garnier: Although to follow Mr Mann’s point, UK gilts are of course an extraordinarily low-risk investment because of the flight to quality. Going back to the amount of money that could be invested in this, we talk about potentially £250 billion. Do you think that there is sufficient appetite for a lot more than £20 billion, and have you done any quantification of that?

Mr Osborne: The £250 billion is a number drawn from the national infrastructure plan, which sets out all sorts of investments that utility companies, for example, are making, and investments that local and national Government are making. The £20 billion is a specific ambition we have set for trying to get pension fund money into infrastructure. I would be very happy if it was more than £20 billion, but I thought £20 billion was a pretty ambitious start. That is the validity of the number.

I want to pick up the point you made in your questioning to Mr Chote and the OBR. I have satisfied myself that the OBR had all that it needed-certainly, we have not received any complaint from the OBR-in terms of the additional spending on infrastructure and some of our ambitions on pension funds and the like. The OBR had that number. It did not have the full document of the national infrastructure plan, because I did not think that was relevant to what it needed to do.

Q355 Mark Garnier: That raises quite an interesting point. I was not going to mention it, but I will do so now that you have. What struck me was that the OBR has gone to a huge amount of trouble to make a forecast of jobs and economic output without taking into account specifically this £250 billion ambition. Would you agree, therefore, that it is underestimating what could happen in the future?

Mr Osborne: I certainly hope it is.

Q356 Chair: Chancellor, you have introduced a scheme to compensate energy-intensive manufacturing for the costs of measures to deal with climate change. Might it not be a good idea to take a look at the measures on climate change, rather than introduce a regulation that bumps up costs, and then have to go into subsidy to offset its effects?

Mr Osborne: My personal view is that climate change is happening. Climate change has been created in part by man and we should do what we can to try to prevent it from happening. This country is signed up to various international and domestic targets in order to achieve that. What you want to do is then use the most rational tools to try to deliver those targets.

Q357 Chair: And you think we have got those?

Mr Osborne: I will take responsibility for the things that the current Government have introduced. They are rational and I think the carbon price floor that I introduced in the last Budget is an absolutely rational economic instrument for pricing an externality-in this case carbon. It will enable investment decisions to be made and it will enable the market to operate in an effective way in this area. I am absolutely for that and I am also the Chancellor who found money for a green investment bank to try to support investment in renewable energy. Indeed, I was with John Thurso up in his constituency a couple of weeks ago with some extra investment in renewable energy in Scotland.

I am absolutely prepared to do those things, but I think we have to be careful about introducing policies that place a disproportionate cost on household electricity bills and the electricity bills of businesses. We have, for example, changed the renewable heat incentive that this Government inherited, which would have put £180 on the average household electricity bill for everyone, and which I think was difficult to justify. With this package, we have also protected a particular group of electricity-intensive industries that were in danger of being priced out of Britain by the combination of all these policies. It is perfectly sensible to have a regime that works across the broader economy, but where you have a particular industry that would be disproportionately affected, you take mitigating action, whether it is through compensation from the European trading system, from the carbon price floor or, indeed, through the climate change levy relief.

Q358 Chair: The carbon price floor, as you said yourself, was introduced by you. It was not part of a combination of measures. What is the Government’s estimate of the extra cost of that?

Mr Osborne: The cost for?

Q359 Chair: The cost of the carbon price floor. What is the overall cost to the UK economy of introducing it?

Mr Osborne: I don’t have the exact number in front of me. I seem to remember that it was about £1 billion. It gets up to about £1 billion a year.

Q360 Chair: And in this autumn statement you have introduced a measure to pay straight back £100 million, haven’t you?

Mr Osborne: We have listened to a particular set of electricity-intensive industries, whether they are steel mills, aluminium smelters, chemical industries or paper mills that have a particularly high demand for electricity and I think we have introduced a sensible set of measures to mitigate the impact of those things.

Q361 Chair: If you are going to compensate heavy industry for the effects of the carbon price floor and you are going to fulfil your EU obligations, some other part of industry, or households, will have to do more than you had planned hitherto. How are you going to absorb that?

Mr Osborne: I think the measures we have announced will be consistent with our hitting our targets. I am satisfied that that will be the case and that by the end of the Parliament-

Q362 Chair: We’ll come back to that in a minute if you want, but who is going to take the extra burden? If the heavy industries are going to be relieved of something, then light industry and households are going to have to bear the rest of the burden. Where is that going to fall?

Mr Osborne: One of the more persuasive arguments in this area was that we were actually going to simply export the carbon emissions to other countries that would set up a steel mill or an aluminium smelter. The impact on overall global carbon emissions was potentially to increase them, which obviously was rather perverse, and in the domestic context we judged that the package we have introduced is entirely consistent with hitting the targets that we set out.

Q363 Chair: What I am trying to get to is what we should take it that the statements-the welcome statements, many people feel-that you made at the Conservative party conference mean for our pre-existing commitments on carbon reduction. At the moment, it is very unclear what those statements mean-even to those who are specialists in this field.

Mr Osborne: My view is that this country should try to reduce its carbon emissions, and can set itself targets for doing that, but it should not get ahead of the rest of Europe. I am not talking about getting ahead of the rest of south America or north America; I am talking about the rest of Europe. In some respects, there was a danger under the policies that were pursued by the previous Government, and in some that have been recommended to the current Government, in that we were going to get ahead of the rest of Europe and, as a result, price ourselves out of industries that the world needs and that create jobs in this country.

When I was shadow Chancellor, it struck me when I visited the steelworks in Port Talbot, and was told about the threat of those steelworks relocating not to Shanghai, but to Holland, that if it were really the case that we had a less competitive regime than the Dutch who, after all, have well-established green credentials, we needed to think about this area of policy. I have made a very clear statement. For example, in the fourth carbon budget-I will not go into the details of that, except to say that it has a very important review clause that, let’s say, I was keen to see included. The review clause forces the Government to look again at the fourth carbon budget in a couple of years’ time if the rest of Europe has not gone down the path-as some people say it will-of increasing its carbon emission targets.

Q364 Chair: I have it in front of me. Perhaps it might be helpful-although not at all easy, so I recognise that it might take the Treasury considerable time, but we would like it before the next Budget-if you could come forward with your estimates of the whole economy costs of each of the current measures that are in place, whether yours or inherited, and publish them. Would you be prepared to do that, Chancellor?

Mr Osborne: I should speak to the Department of Energy and Climate Change, but-

Chair: But this would need to be co-ordinated by the Treasury-it is an economy-wide challenge to work this out.

Mr Osborne: I am very happy to send material to this Committee. I point out that in these whole-of-economy impact assessments there are often benefits that measures bring to the economy in terms of new industries that are created in renewable energy. The previous Government commissioned work on the costs that climate change might impose on the economy. You will get an estimate, which the Government produce. I suspect that they will not satisfy you, Mr Tyrie, because you will question some of the assumptions about the pro-growth nature of some of the policies.

Chair: What I am encouraging you to question, as Chancellor-

Mr Osborne: I am very happy to submit what the Government produce.

Chair: Good. Well, let’s see what you come forward with.

Q365 Mr McFadden: The Kettering bypass, the special relief for industries affected by climate change, the special scheme for house purchase-when I listened to your recital on these various initiatives here and there, as well as the trailing of the announcements, which George Mudie asked you about a little while ago, it all seemed very familiar in terms of Budgets past. A lot of people are saying that, in style if not in context, you are very similar to Gordon Brown. Is that by design or is it a coincidence?

Mr Osborne: I guess you would know better than I would, Mr McFadden. I think there is a fundamental difference. In this autumn statement, as in my previous statement, I am trying to get a grip on the public finances and get the deficit down-not put the deficit up. The A14 Kettering bypass is funded by a cut in current spending. It would be bizarre to say that a Conservative Chancellor is not allowed to fund roads, but the difference between a Conservative Chancellor and the last-but-one Labour Chancellor is that I actually found the money to pay for the road, which is a significant difference. When it came to housing, I am trying to encourage the right to buy, which, unfortunately, my predecessor-but-one did everything he could to strangle.

Q366 Mr Mudie: Why can’t you take a compliment?

Mr Osborne: It would be a compliment from you, Mr Mudie. I am not sure that it is a compliment from Mr McFadden.

Q367 Mr McFadden: On the infrastructure plan, the OBR told us that it had not seen that document. It details £250 billion in potential expenditure. Surely that would make a difference to economic growth and its future employment projections. Why was it not shown to the OBR?

Mr Osborne: I promise you that this is not some sinister plot by the Treasury to withhold information from the Office for Budget Responsibility. We are completely open and transparent and produce anything that it asks us for. What we sent to it, and what we thought was absolutely key to its work, was the document that was reproduced in the autumn statement Green Book-if that is what we call it now-which is the table on infrastructure spending, so it had this document.

Q368 Mr McFadden: Is this Government spending?

Mr Osborne: It details all the Government spending. What the infrastructure plan does is bring together all sorts of investment intentions and proposals in the private sector as well as in the public sector. I have certainly had no complaint since last week from the OBR that this was some crucial part of Government information.

Q369 Mr McFadden: That is partly because they don’t really believe it will all happen. They were quite clear about that too-at least, they said it was not firm enough for them to take it into account.

Mr Osborne: There are a couple of areas-I have not been asked about them, but I will probably rather foolishly volunteer them-such as the tax treaty with Switzerland, which we would hope to get revenue from. We would hope and expect to see these roads built. The OBR takes a perfectly sensible view, which is that when things are legislated for or when it can see the road being built or it is absolutely confident that it will happen on time and on budget, it will take it into account, because it is not politically biased, it is not making political assumptions. I think that that is very sensible.

Q370 Mr McFadden: I did not say that it made political assumptions. I simply would have thought that it should take such a big plan into account.

Mr Osborne: Since you brought up one of my political heroes-Gordon Brown-let me say this: one of the reasons why this country went so badly off track was because he made heroic assumptions about the increase in the trend growth rate in the middle part of the last decade. He convinced himself and others that there was some fundamental change, some China effect, or however he described it, meaning that he had fundamentally improved the productivity of the British economy, which enabled him to run a larger deficit and to take these decisions to spend to invest. Of course, when the music stopped, this country was left with a massive budget deficit. I am not taking that judgment and the OBR does not take that judgment. I would much rather be judged on the things that are produced, the things that are built and the outcomes and not make heroic assumptions that turn out to be untrue.

Q371 Mr McFadden: I think that that gives us a useful context for looking at this document. Let me ask you about the eurozone. The OBR has said that it assumes that we will muddle through-I think that that is the phrase it uses-the eurozone crisis. We have had representations to the Committee that failure to resolve the eurozone crisis could cause huge damage to the UK economy, in the order of 5% to 7% of GDP. Are those estimates in the right ballpark? If the Treasury has different estimates of the failure to resolve to this, could you tell us what they are?

Mr Osborne: I do not think it is sensible for me to give those estimates in public. The Treasury has done a huge amount of thinking about what might happen and contingency planning, as you might expect. What is clear when you do that is that there are all sorts of different outcomes. That is one of the reasons why the OBR says-I have the quote written down-that it "is impossible to quantify in a meaningful way" what the economic impact is, except to say that it would be a much worse outcome. If I were to put a figure on the GDP number, not only would it produce a lurid headline tomorrow, which I am not sure would help the world, but it would also just be a guess, because we do not know, in the scenario we are talking about, which is an adverse outcome, how that adverse outcome would play out, how many countries would be involved, and the like. It is much more sensible to make it clear that it would have a very significant impact and do the planning for that eventuality, but also do everything we can, as the Prime Minister is going to be doing this week, to try to bring about a more orderly resolution of the crisis.

Q372 Mr McFadden: If it is going to be a much worse outcome-and you said earlier on that resolving the euro crisis would be the biggest shot in the arm the economy could have this autumn-how realistic is it for the UK Government to be saying they might veto a package that would resolve it and would therefore avoid this much worse outcome for our own economy?

Mr Osborne: Well, as the Prime Minister was setting out today in Prime Minister’s questions, we would like to see a treaty of 27. We think there are things that the eurozone needs to do to make its currency operate better, but it is perfectly reasonable when you have a treaty of 27 that Britain’s interests, as one of the 27, are protected. We are making reasonable requests in order to protect Britain’s interests, to ensure, for example, when it comes to financial services, that the single market operates at 27 and that there is a proper recognition of the fact that 80%, or thereabouts, of the wholesale financial services of the European Union are located in London. If there is a treaty of 27 we can make perfectly reasonable requests. If the eurozone decides to operate at a treaty of 17, as it has done before-the Schengen treaty, for example, was not of 17 but was less than the full membership of the European Union-so be it. If the eurozone wants to use the institutions of the European Union to do that we will also seek reassurances that Britain’s interests are protected. I think that is a perfectly rational way to approach these negotiations.

Chair: This will have to be the last question, with a very quick reply, please.

Q373 Mr McFadden: Are you saying we would actually veto something that you described yourself this afternoon as the biggest shot in the arm the UK economy could get?

Mr Osborne: The biggest shot in the arm that the British economy could get this autumn would be a resolution of the euro crisis. That requires a number of different things, which I am happy to go into, of which better co-ordination and greater fiscal integration among the eurozone countries is one component. It is not the only component. As the Prime Minister was making very clear today, one of the big challenges is the current account deficits and current account surpluses within the eurozone, and the need for the peripheral countries to improve their competitiveness vis-à-vis Germany. That is a big challenge, which no treaty change alone is going to bring about; but if there is a to be a treaty change at 27, it is perfectly reasonable for the UK to seek protections at 27 for the single market-for the fair operation of the single market for all 27 members, and for the protection within that single market of Britain’s economic interests. That is how we intend to approach these negotiations.

Q374 Chair: I am sure we will be coming back to those issues before too long, both on the Floor of the House and in this Committee. Thank you very much, Chancellor, for coming before us.

As you know-you are examining it-we produced a report on the accountability of the Bank of England. The new era of regulation of systemic risk that you brought in means a much more powerful Bank. There is great interest and some concern in Parliament that we get the accountability structure right, and I think it worth saying now that when you produce that there will be a lot of interest in Parliament and in this Committee, and we may want to see you again to discuss that. An announcement is coming shortly on Vickers, I expect, and the regulation of banking, but in the meantime thank you very much for coming now.

Mr Osborne: Shall I just say one thing on that? I very much appreciate the work that the Treasury Select Committee has done on the governance of the Bank of England and the arrangements for financial supervision. I am awaiting the work that the joint parliamentary Committee has done on the actual draft legislation. Once I have received that as well I will respond to both and of course answer any questions you have about it.

Q375 Chair: Thank you very much. You produced what amounts jolly nearly to a Brownite mini-Budget, in size if not in content, but I don’t think that was your original intention.

Mr Osborne: Can I just say there is a fundamental difference, which is that I am paying for my measures rather than leaving it to my successors to pay for them. That is pretty fundamental.

Chair: I expect that in more normal years we will return to the intentions that you had at the beginning, to have autumn statements rather smaller and one large financial statement a year. We look forward to the next one in only 17 weeks. Thank you very much, Chancellor.

Prepared 29th February 2012