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Let us consider this one fact, raised by my hon. Friend the Member for Suffolk Coastal (Dr Coffey), which the previous Chancellor refused to publish. The only reason she can deploy that fact in the Chamber is
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that this Government published it. It is that, on the spending plans that we inherited from the previous Government, British taxpayers are going to pay £70 billion a year in debt interest by the end of this Parliament. That is higher than the education budget, it is higher than the defence budget, and it is far higher than the policing budget. That figure was kept secret from the British people, but we will publish it because people need to know where their money is going.

Mr Sheerman: A lot of brickbats will be thrown across the Chamber today. Surely all hon. Members, on both sides of the House, as people who care about the long-term future of our economy, agree that cuts are necessary, but is it sensible to cut widely and deeply before private investment has recovered?

Mr Osborne: At least the hon. Gentleman acknowledges-it is the first time, either in this debate or in Treasury questions, that we have heard this from those on the Opposition Benches-that cuts have to come. [Hon. Members: "The shadow Chancellor said that."] I am sorry, but we have just listened to a speech by the shadow Chancellor in which he explained why we should not be trying to accelerate the reduction in our structural deficit, despite the advice of the Governor of the Bank of England, the European Commission, the OECD, the G20, virtually every international investor in the UK economy and virtually every business organisation that represents businesses in this economy. The hon. Gentleman acknowledges at least that there have to be cuts. The offer that I make to him-he may take this up; I am not sure that his colleagues will-is to engage in a proper conversation in the Chamber over the next three or four months about the decisions that will obviously have an important impact on the way the Government function over many years to come.

Huw Irranca-Davies (Ogmore) (Lab) rose-

Mr Osborne: I will give way on one more occasion and then make some progress.

Huw Irranca-Davies: I want to extend to the right hon. Gentleman the courtesy of asking the question that I asked previously, because he did not do me or my constituents the courtesy of answering it. If his judgment is wrong and the cuts are either too soon or too deep so that there is not sufficient economic growth to deal with the cuts that will be imposed, will that not mean that my constituents will suffer all the pain of the cuts and have none of the gain of the growth?

Mr Osborne: If the hon. Gentleman is not prepared to trust my judgment, let me read out what the Governor of the Bank of England has said:

That is the judgment of the Bank of England Governor-appointed, by the way, by the shadow Chancellor-and the judgment that we have taken in order to protect the prosperity and the livelihoods of the people whom the
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hon. Gentleman represents, and the people represented by everyone else in the House of Commons.

Several hon. Members rose -

Mr Osborne: I will make a little progress, and will give way later on in my speech, if Members will allow.

Of course, the backdrop is that our economy has become deeply unbalanced. There is deep imbalance between different parts of the country: the wealth gap between regions widened over the past 13 years. There is imbalance between different sections of society: the gap between the rich and the poor widened in our country over the past 13 years. There is imbalance between different parts of our economy: the public sector boomed to take almost half our national income, while the private sector struggled with the deepest recession that we had seen since the war. This Queen's Speech, with its landmark reforms of welfare and education, begins the task of righting those wrongs. Later in this debate, we will hear from my right hon. Friend the Secretary of State for Work and Pensions, who has done more than anyone to highlight the trap of low aspiration, poor education and welfare dependency that our fellow citizens do not deserve and our country cannot afford any more.

Mr David Winnick (Walsall North) (Lab): However dismissive the Chancellor may be, those of us who have been here since 1979 and who saw what the last Tory Government did saw only too clearly that the burden of the cuts that were made then fell on those least able to bear it, and the rich and prosperous did very well indeed. That is why we are so sensitive about the people whom we represent, and why we are so suspicious of what the Chancellor is saying, no matter what sort of qualifications he makes. I am afraid that it is our people-the people who sent us here to sit on the Labour Benches-who will suffer the worst of the burdens.

Mr Osborne: The similarity is this: in 1979, a new Conservative Government also had to deal with a terrible economic inheritance from the Labour party. If the hon. Gentleman is so affronted by what Margaret Thatcher did during her premiership, perhaps he could explain why, every time there is a new Labour Prime Minister, virtually the first person they invite round for tea is Margaret Thatcher.

Several hon. Members rose -

Mr Osborne: I will make a little progress.

The Queen's Speech contains five Treasury-sponsored Bills, and I should say something about each of them. There is the national insurance contributions Bill to stop the jobs tax that Labour would have imposed. Like every post-war Labour Government, the previous Government left office with unemployment rising, and their answer was to increase the cost of employing low-paid people. I have not yet heard from the shadow Chancellor, or anyone else, whether that is still the official Opposition's policy. Our reforms to national insurance will not just stop the most damaging part of the jobs tax but will, by raising employer thresholds, reduce the cost of employing people on lower incomes. The Budget will also contain further measures to stimulate private sector employment and to proclaim to the world that Britain is open for business.

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There is the financial services regulation Bill to fix the previous Government's system of banking regulation. To respond to the question asked by the shadow Chancellor, next week I will set out in more detail the content of that Bill and how we propose to take the matter forward. I find it somewhat baffling to be told by him that he is unsure who is in charge of banking regulation at the moment. That was the question posed by the Treasury Committee in the last Parliament-a question about the system of regulation that his predecessor as Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath, created in 1997. That system meant that no one was in charge of looking at the growing levels of debt and the systemic risks building up in our banking system.

I believe that it is still the Opposition's policy to oppose our decision to introduce a bank levy; they claim that they want every country in the world to have agreed to such a levy before Britain goes ahead with it. Our decision is to proceed with it, because the banks should pay some contribution to clearing up the mess that they helped to create.

We are working urgently on a problem that the shadow Chancellor correctly raised, but to which, of course, he found little solution when he was Chancellor: the problem of getting credit to small and medium-sized businesses that still face a credit crunch out there in the country.

I welcome the shadow Chancellor's support for the terrorist asset freezing Bill, which, of course, has bipartisan support. Then there is the Bill that should have been introduced by the previous Government years ago-the Equitable Life payments scheme Bill to help those who lost everything and were given nothing by the Labour Government.

Chris Bryant (Rhondda) (Lab): I warmly welcome the fact that the Chancellor has introduced that Bill, which is an important piece of legislation, and I hope that compensation arrives for those who lost an awful lot of money. However, may I urge him to learn one thing from the miners compensation scheme, which ended up putting an awful lot of money into lawyers' pockets-unscrupulous lawyers in many cases? Will he make sure that it is a simple, transparent scheme that does not require us to pour taxpayers' money into lawyers' pockets?

Mr Osborne: The hon. Gentleman makes a good point. What happened with the miners compensation scheme was a tragedy, and we will certainly seek to learn the lessons of what went wrong. He is more than welcome to correspond with us-I am going to volunteer, if he wants, a meeting with one of my colleagues to discuss the issue-because we are determined to introduce the legislation and help those people who lost everything. We hope that that will command support on both sides of the House.

Finally, we will introduce a Bill to give the independent Office for Budget Responsibility statutory authority and to bring transparency and honesty to our nation's finances. I cannot work out whether the shadow Chancellor now supports that proposal, which he opposed in government, but it is a revolutionary step in budget making, removing forever the historic power that Chancellors have had to make the official forecasts. It is based, however, on a very simple idea-perhaps completely alien to the thinking of the previous Government-that in future, we fit the Budget to fit the figures, instead of fixing the figures to fit the Budget.

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With the help of Sir Alan Budd, we have established the Office for Budget Responsibility on a non-statutory basis. Today I am publishing in a written ministerial statement the terms of reference that I have agreed with Sir Alan. With his consent, I can confirm in the House for the first time that the office will produce its independent assessment of the growth forecast and other forecasts next week, on Monday 14 June. The Budget will be presented just over a week later, well within 50 days of the election, as we promised.

Geraint Davies: On the figures, the Chancellor will remember that in February last year the unemployment rate was 2.5 million. Independent forecasters and economists were predicting that unemployment would now be between 3.5 million and 4 million. Does he accept that we do not have those levels of unemployment because of the fiscal stimulus from the previous Government? Furthermore, he will know that the cost of an extra 1 million unemployed is £6 billion, which would wipe out the savings that have just been announced. Will he therefore be extremely careful not to make cuts that will undermine the economic capacity for growth in future?

Mr Osborne: Unemployment is rising. We have the highest youth unemployment in Europe. We have the highest proportion of children growing up in workless households of any country on the European continent-that is not a record of which I would be particularly proud if I were a Labour MP. We are going to introduce a comprehensive work programme, and reform welfare to create genuine incentives to make work pay. One of the issues that came up time and again in the general election-for me at least, and perhaps for other Members-was the frustration felt by working people on low incomes who go out to work every single day and find that their next-door neighbour has been sitting on out-of-work benefits for years. That is going to be part of the reform that we introduce in our welfare Bill.

I was discussing the Budget, which needs to address the immediate debt situation that the country faces. However, it will also begin the long-term task of moving an economy based on debt-too much consumer debt, too much banking debt, too much Government debt-to an economy in which we save, invest and export in future. If anyone needs to be reminded why the immediate debt situation we have inherited is so serious, I suggest that they read the report on the UK produced by one of the world's three credit-rating agencies today, which warns of

country, and points to

The rating agency says that the previous Government's plans to reduce the deficit are "distinctly weak" and lack "credibility". It says that we are the only European economy set to run a budget deficit above 3% in five years' time. That is all at a time when, as it points out, the fiscal crisis in Greece and other eurozone countries has caused a major shift in investors' attitude to sovereign risk.

Mr Andrew Love (Edmonton) (Lab/Co-op): I thank the right hon. Gentleman for giving way. He spoke earlier about judgment. Is he not concerned about the outbreak of competitive austerity across Europe? Does he not think that that may well lead to European economies all bumping along the bottom because we cannot get international trade up and running again to sort out the difficulties of our economy?

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Mr Osborne: But the reason why European economies, particularly those in southern Europe and in the eurozone, are having to take the measures that they are taking is that there are concerns about sovereign credit worthiness. Of course they must deal with their situation, but, in the month that I have done the job, I am very aware when I sit down at ECOFIN or at the G20 that I represent the country with the largest budget deficit at either of those gatherings. That is the situation that we inherited- [Interruption.] For two years we had to listen to all the lectures about how the European Union, the G20 and the OECD disagreed with what we are saying. Now they agree with what we are saying. The G20 communiqué signed in South Korea stated:

That is the situation bequeathed by the previous Government to Britain.

Mr Ivan Lewis: I thank the Chancellor for giving way. I have some simple questions. Were we right to save Northern Rock? Were we right to recapitalise the banks? Were we right to go for fiscal stimulus? Can the Chancellor be frank with the House about the decisions that my right hon. Friend the shadow Chancellor made?

Mr Osborne: Talk about refighting the last war. We spent the entire general election talking about those decisions. The answer is that the British people agreed with us and not with the shadow Chancellor.

Several hon. Members rose -

Mr Osborne: Let me make some progress.

It is striking that the Opposition do not have a single positive idea to propose about how we sort out our nation's economic problems. They are still talking about decisions taken a year previously or in 2008. I am happy to debate them; I debated them on television with the shadow Chancellor during the general election; I debated them in the House on many occasions, but what I am now interested in is sorting out the country's economic problems and getting Britain working again.

Several hon. Members rose -

Mr Osborne: I have given way a great deal, and there are Members on both sides of the House who want to make their maiden speeches.

Let me say this to Labour Members: their response in this debate and in Treasury questions is pretty striking. The credibility of our country is put at risk by their borrowing decisions, and they do nothing. Higher debts threaten higher interest rates, and they do nothing. Every single measure that we have taken they oppose. They sign up to every pressure group complaint. They agree with every trade union protest in order to gobble up votes in their leadership contest. They now find themselves in the ridiculous position whereby the reductions in spending for this year are applauded by the G20 but opposed by the shadow Chancellor who used to attend it, and our clear commitment to accelerate the reduction in the deficit is supported by the US Treasury Secretary but opposed by the shadow Chief Secretary. Let them lurch off leftwards into the comfort zone of opposition, while the rest of us work together in the national interest to fix the problems that they left behind. Let me explain how we propose to do that.

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Alongside other measures to support the recovery, the Budget on 22 June will set out the overall mandate for bringing the deficit under control, against which the Office for Budget Responsibility will judge the Government's fiscal policy in future. It will set the overall envelope for spending, but it will not allocate spending between Departments. That is what the spending review will do this autumn.

Today I am placing in the Library of both Houses the document that explains how the review will work. The shadow Chancellor complained that he received the document only as he was coming into the Chamber. That was about an hour before I used to receive any document from him in the debates in this place.

Given the scale of the spending reductions required, the review needs to be quite different from any that this country has seen in recent years. For the past 13 years, spending reviews have not exactly been collegiate affairs-more of a one-way process. The Treasury told Departments what they were getting and precisely what they would do with the money-no room for innovation, no acknowledgement that some of the best ideas for doing things differently might come from the front line and not from the centre. The result of this top-down, centre-knows-best approach was falling public sector productivity and that large budget deficit-less for more. We cannot afford to continue in that direction.

As has been said in the Chamber today, we need to look at Canada and its experiences in the 1990s, when it too faced a massive budget deficit. It brought together the best people from inside and outside government to carry out a fundamental reassessment of the role of the state. They asked probing questions about every part of Government spending. They engaged the public in the choices that had to be made, and they took the whole country with them. That is what we will seek to do. We are committed to carrying out Britain's unavoidable deficit reduction plan in a way that strengthens and unites the country.

The spending review will be guided by the principles of freedom, fairness and responsibility. It will deliver on the Government's commitment that health spending will increase in real terms in each year of this Parliament, and we will honour the promise that we as a British people made to the developing world on overseas aid. It will limit as far as possible the impact of reductions in spending on the most vulnerable in society and on those regions heavily dependent on the public sector. It will protect as far as is possible the spending that generates high economic returns so that we build the economy of the future while cleaning up the mess of the past.

Mr Nigel Dodds (Belfast North) (DUP): The Chancellor mentions those areas heavily dependent on the public sector and the impact on different regions of the United Kingdom. I welcome that commitment, but in order for it to be real, as opposed to simply rhetoric-he talks about the Finance Ministers quadrilateral meetings discussing the spending review-will there be a robust resolution mechanism, so that it is not just the Treasury that decides what happens with regard to the devolved Administrations, which, after all, have their own independent administrations, budgets and economic settlements?

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