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The Economy and Pensions

Mr. Speaker: I inform the House that I have selected for debate the amendment in the name of the Leader of the Opposition. Standing Order No. 33 provides that on the last day of the debate on the motion for a Humble Address to Her Majesty the House may also vote on a second amendment selected by the Speaker. I have selected the amendment in the name of Dr. Vincent Cable for that purpose. The vote on that amendment will take place at the end of the debate, after the amendment in the name of the Leader of the Opposition has been disposed of.

1.37 pm

Mr. George Osborne (Tatton) (Con): I beg to move, as an amendment to the Address, at the end of the Question to add,

This is the last day of the Queen’s Speech debate and the first occasion on which the new Chancellor has taken part in it in his new role, and I want to begin by reviewing his first four months in office. He has presided over the first bank run for 140 years; he turned his own pre-Budget report into a political disaster; he has downgraded growth and revealed a £16 billion hole in borrowing; he has hit pensioners with another £2 billion tax raid; he has announced a catastrophic plan for capital taxes that has the Prime Minister briefing against him, and he has managed to cede the entire intellectual agenda on the economy to the Opposition. What an amazing start—congratulations.

I fear the story of this Chancellor is set to be a classic political tale of someone who rises from nowhere and disappears to nowhere without having been anywhere in between. I grant that he has taken one difficult decision. I have to hand a report from The Times:

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Bad news: he is forced to spend weekends at Dorneywood. Good news: the Prime Minister thinks there are lower ranking functionaries. The question we ask today of the current Chancellor is simple: can he up his game and provide the leadership and vision required in these times of economic uncertainty?

Let us look at three key areas that a Chancellor must command: tax, spending and, most importantly, economic stability. On stability, it is not the Government’s fault that the global credit markets froze on 9 August, but it was only in Britain that those international problems triggered a run on a high street bank. The collapse of Northern Rock is not just a tragedy for the many thousands who work for the bank; it has done serious long-term damage to Britain’s reputation for stability.

Last week, we fell to 46th place in the World Economic Forum’s latest rankings for economic stability. The whole point of the tripartite arrangements created by this Government a decade ago was that they would stop people queuing in high streets trying to withdraw their deposits, yet when the moment of reckoning came, no one was in charge—the Financial Services Authority did not have the authority, the Bank did not have the final say and the Chancellor did not have the strength of leadership.

I do not blame the Chancellor for the system of oversight; I blame his predecessor. As one of the original Monetary Policy Committee members, Professor Buiter, told the Treasury Committee this week,

The fact that the Government are bringing forward legislation on deposit insurance in this Queen’s Speech is, in itself, an admission of failure.

I wrote to the Chancellor more than a month ago offering cross-party support in preparing that legislation—not that he has ever bothered to reply. As we consider the Bill, we will insist that there is a balance between protecting the saver and not shielding managements from the consequences of their decisions. It is just a pity that neither the Chancellor nor his predecessor introduced the legislation before the crisis, because we know that that is precisely what Mervyn King was urging him to do. Had he or his predecessor listened to the Governor of the Bank of England, the run on Northern Rock might not have happened.

Before Parliament is asked to fix a problem, we must be clear what went wrong in the first place. We still do not know all the facts. I welcome the fact that the Treasury Committee is holding its inquiry. This will be one of its most important reports of the Parliament. Let me just give the House one example of something that we do not yet know about the events leading to the collapse of Northern Rock. On the crucial day before the run started, the Governor of the Bank of England wrote to the Chancellor of the Exchequer setting out the conditions of the rescue. The Governor then told the Select Committee that he was happy for that letter to be published, but the Chancellor refuses to publish
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it. There is a disagreement between the Governor and the Chancellor. Why is the Chancellor refusing to publish this letter, which the Governor is happy to see published? What is he trying to hide?

When will we hear about the future plans for Northern Rock? We learn more from press leaks than we do from the Chancellor, even though this bank has borrowed more than £20 billion on the public account, which is more than the entire Home Office budget. His excuse is that the decisions about the future are for Northern Rock’s management—indeed, the Prime Minister has said during Prime Minister’s questions that this is commercially confidential—but it is an open secret in the City that the Treasury is conducting the negotiations, and it is the taxpayer who is exposed.

This is not about commercial interest; it is about the public interest. We know, for example, that the Treasury has hired Goldman Sachs to advise it on the sale of Northern Rock and we hear the ominous news that Baroness Shriti Vadera is getting involved, presumably on No. 10’s instructions. If the Prime Minister does not have the confidence in his Chancellor and his Treasury Ministers’ ability to solve the problem, why should we?

Let the Chancellor at least confirm today the reports from Northern Rock’s investment bank that the Bank of England facility could still be in place in three years’ time, which is a great deal longer than the weeks or months he told the Select Committee in September. Let him assure us that at the end of the chaotic process, the taxpayer will not be left with a huge bill. Although we welcome the broader review of the future of the tripartite arrangements, let him tell us when he and the Prime Minister will take a decision on the reappointment of the Governor of the Bank of England. Dangling the sword of Damocles over Mervyn King while allowing officials in the Treasury and Downing street to brief against him may satisfy the vanity of the Chancellor and the Prime Minister, but it does nothing to restore confidence in the independence of the Bank of England. They should have the strength to make the decision about his future and the foresight to ensure that future Governors are not treated in this way by adopting longer fixed terms in the way that we propose.

Stability is the first priority for any Chancellor, but tax is the next area that he must command. In an age of intense global competition, when capital and business can move with ease, we need a low and competitive tax system. That is the lesson from not only Ireland but other countries, such as the Netherlands, which are now reducing their corporate taxes. Yet Britain has a Chancellor whose first tax change is an 80 per cent. increase in capital gains tax. That was one of the few tax measures in the pre-Budget report that was not inspired by the Conservative party, and it is universally regarded as a self-inflicted political and economic disaster.

Julia Goldsworthy (Falmouth and Camborne) (LD): Will the hon. Gentleman confirm that the Conservatives opposed taper relief when the Prime Minister introduced it when he was first Chancellor?

Mr. Osborne: When taper relief was introduced it related to a 10-year period, rather than the two-year period that applied until the Chancellor abolished it in the pre-Budget report. The system that the Government
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inherited from the previous Conservative Government had retirement relief —[Interruption.] I do not know why Labour Members are chattering, because they are reintroducing a single rate for capital gains tax. When it was announced a month ago, they said that they would not have retirement relief, but the Prime Minister is now saying that they might. If they reintroduce indexation, we will be virtually back to where we started.

The Conservatives are against the changes in the pre-Budget report. If they make their way into the Finance Bill in April, we will oppose them, for these are exactly the wrong tax changes to make in the face of a new economic revolution that puts a premium on enterprise and risk taking. That is why all the major business organisations come together to condemn the tax rise as damaging to long-term investment and likely to set back the growth of the economy.

The Treasury should be familiar with that analysis because it used to share it. Six years ago, the former Chancellor published a report that said that the tax change now being proposed by the current Chancellor

In fact, it has been difficult keeping the Government’s advisers off the airwaves in recent weeks, as they queue up to attack the proposals. Lord Bilimoria, the Chancellor’s small business adviser, says:

Sir Ronnie Cohen, who by happy coincidence combines generous support for the Government with unexpected appointments to Government taskforces, said this weekend:

What about the newest and shiniest adornment in the ministerial trophy cupboard? I am, of course, referring to the great Lord Digby Jones of Birmingham, the Labour Minister who does not trifle himself with such insignificant baubles as Labour party membership. He says that

—tax rise—

To be fair to the Chancellor, throughout this hail of criticism from friend and foe he has refused to budge, or to countenance a U-turn or concession. There is something admirable about the Minister who sticks to his guns, but when his guns are spiked by his own Prime Minister, admiration turns into humiliation. The Chancellor told us at that Dispatch Box that there would be no concessions because this was

Four days later, the Prime Minister told a newspaper editor over breakfast that it was the wrong thing to do and that there would be concessions on retirement relief. What did the Treasury and the Chancellor know of that prime ministerial U-turn? They knew absolutely nothing.

Lorely Burt (Solihull) (LD): If the Government see fit to reintroduce retirement relief, what will the Conservatives’ attitude be?

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Mr. Osborne: We would certainly welcome any concessions on this. We oppose the whole change that is being put forward, but if all we are going to get is some concessions, we shall seize them. We shall take concessions that we secure, campaign on them in places such as Solihull and no doubt win those parliamentary seats at the general election.

What did the Treasury and the Chancellor know of this prime ministerial U-turn? They knew absolutely nothing about it. When his great Department of state was asked to confirm the story, it answered, “We don’t know. This did not come from us.” Can one imagine the former Chancellor, who is now in No. 10, ever standing for such shabby treatment from his superiors—not that he thought he had any? I am sure that the new Treasury team was grateful for the helpful explanation provided by Downing street. Again, I have the report here:

We know that the Chancellor is not in charge, but when he replies in this debate, will he clear up the confusion, to which I have just alluded, for thousands of small business owners who are wondering whether to sell up before next April? Is the retirement relief, briefed by the Prime Minister in private, now a firm commitment? Will it be £100,000 or perhaps more? Are other concessions on the way, such as indexation? I would be happy to give way to the Chancellor so that he can clear up what the Prime Minister said. We cannot all wait to be invited for breakfast at No. 10 to find out what is going on at the Treasury— [ Interruption. ] For a second there, I thought that we were going to get an intervention, but it appears that we will just have to wait.

Of course, these days, one can do even better than breakfast at No. 10 by coming to the Conservative party conference to discover what will be in the next Labour Budget. We proposed a levy on non-domiciles, and the Chancellor accepted it. We offered a cut in inheritance tax, and he followed it. With the Liberals, we argued for an airline tax on pollution: he spent six months attacking it, and now he is introducing it. Well, no one ever promoted him for his originality. We have had reforming Chancellors and iron Chancellors, and now we have the xerox Chancellor. I am not offended, as imitation is the sincerest form of flattery. But while he is following our ideas, why does he not cut the corporation tax rate by simplifying the system? Why does he not reverse the small company tax rise, set for next April, by scrapping the complex allowances that he is introducing? And why does he not adopt our plans to take millions of first-time buyers out of stamp duty altogether? Why does he not do all those things that we propose? He should not worry, because we will still let him hold up the Red Box on Budget day.

Mr. John Redwood (Wokingham) (Con): My hon. Friend is making a great speech. Has he noticed how the Chancellor slipped through a substantial increase in petrol tax at a time when oil prices were rising, so that he now takes more than 65p a litre from everyone who buys petrol to go about their business? That has
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led to a spike in inflation so that we have to pay twice, first in oil taxes and second in higher interest rates because of the inflationary consequences. Is that not also a blot on his record?

Mr. Osborne: The ways that the Chancellor finds to raise revenue do not surprise me at all. Of course, the remarkable thing about this Government is that even after a decade of stealth taxes and the highest tax burden in peacetime history, we still manage to have the largest budget deficit in Europe—a formidable achievement.

Rob Marris (Wolverhampton, South-West) (Lab): Before the hon. Gentleman took the intervention from the right hon. Member for Wokingham (Mr. Redwood), he reeled off a string of tax cuts that he thought would be in the interests of the British economy, and I understand his position, although I do not agree with it. Would he care to say what spending cuts there would be if those tax cuts went through or, alternatively, what other mainstream taxes he would raise?

Mr. Osborne: Well, I— [ Interruption. ] I was about to say how much I like the hon. Gentleman, because we have served together in Committees on Finance Bills for many years. I was about to say, before Labour Members started chirping, that the hon. Gentleman normally pays close attention to what other people say, so I shall repeat what I just said. I asked why the Chancellor does not cut the corporation tax rate by simplifying the system. Why does he not reverse the small company tax rise by scrapping the complex allowances? Those are revenue-neutral changes to the tax system. The hon. Gentleman is right: the proposal to take millions of first-time buyers out of stamp duty altogether is a tax cut, but it would be paid for by the increase in taxation on non-domiciled taxpayers. Those proposals are all fully funded.

Chris Bryant (Rhondda) (Lab): Will the hon. Gentleman give way?

Mr. Osborne: I cannot resist giving way to the man who so successfully organised the coup against Tony Blair last year.

Chris Bryant: The hon. Gentleman has raised the issue of taking first-time buyers out of stamp duty several times. That sounds attractive, but has he thought through the detail? This may seem a silly question, but how does one decide who is a first-time buyer? Does it include a couple with one partner who has bought a house already and one who has not? If he does not have a proper answer, can he tell the House why it would be fairer to provide an exemption from stamp duty for people who might or might not be wealthy, rather than deliberately providing support to the poorest in society?

Mr. Osborne: The proposal will apply to couples if both are first-time buyers. It is not an insurmountable problem, because it has been introduced in Australia and the nationalist Government in Scotland have a different scheme, which involves public subsidy, but they are also looking at first-time buyers. Many other countries are doing it. I am sure that the hon. Gentleman
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would not want it to be the case that first-time buyers living in the Chancellor’s constituency were helped, but those living in his constituency were not.

Chris Bryant: The hon. Gentleman clearly does not understand about stamp duty in the Rhondda, but very few people pay any stamp duty there.

Mr. Osborne: The hon. Gentleman cannot hold me responsible for the failure of this Government to regenerate the Rhondda.

I was talking about the Chancellor’s weakness on taxation, but I shall now turn to the third key area that a Chancellor should command—spending. Last month he announced the results of the comprehensive spending review. We were told, “Just you wait. This will be the great moment when the Brown Government finally sets out its vision.” But the spending review has sunk without trace.

Of course, I am delighted that the Government are now committed to our policy of sharing the proceeds of growth, but tighter spending plans are not enough. The public want value for money. They will not get it from the European Communities (Finance) Bill, which we debate here next Monday. I understand that the Chief Secretary will lead off for the Government. It is a Treasury Bill, and it is the most expensive piece of legislation included in the Queen’s Speech. I say “included”, but for some reason it was not mentioned in Her Majesty’s actual speech and it was not referred to at all by the Prime Minister in the debate later. But the European Communities (Finance) Bill will sign away more than £7 billion of the British rebate in return for absolutely nothing. It contains no commitment to CAP reform, or even a European budget that the auditors can sign off—something that they refused to do again this week.

We know that it is a bad deal because the Prime Minister, when he was Chancellor, went around telling every journalist that he could find that it was a bad deal. He said it was all Tony Blair’s doing, and that he would never have signed it. In the heat of the negotiations, one Treasury official put it like this:

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