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Rachel Reeves (Leeds West) (Lab): I welcome the establishment of the Office for Budget Responsibility and the increased transparency that it brings. However, the point that today's document makes most clearly is that the economic recovery is still fragile. The Chancellor makes interesting points about the structural deficit, but does he agree that the structural deficit depends also on the level of economic growth? What are he and his Government doing to lift the economic growth rate, when there is so little about, given that the future jobs fund, the regional development agencies, and support for industry and universities are all being scrapped?
Mr Osborne: We are providing support to the economy, first, by providing a transparent account that commands international confidence, and secondly, by committing to a clear plan to reduce the budget deficit and taking in-year measures that have commanded international confidence. That has led to a reduction in market interest rates for this country and given enormous support to the economy.
The final point that I would make to the hon. Lady is this. Let us not forget the situation that we inherited: the largest budget deficit in the developed world; rising unemployment; industry that had been brought to its knees; business investment that had collapsed. That is the situation that we are trying to recover from.
Jacob Rees-Mogg (North East Somerset) (Con): Will the Chancellor consider asking the Office for Budget Responsibility to think about tax cuts to help economic growth, thereby bringing our budgetary system into a better situation?
Mr Osborne: Sir Alan will give evidence to the Treasury Committee when it is formed, but one of the things that the Office for Budget Responsibility will do is cost Budget measures, including the impact of tax and spending changes. That will revolutionise how Budgets are put together, as well as how the House can scrutinise them, because hon. Members will be able to see that the costings are independently verified, rather than being ones that the Chancellor has signed off.
Fiona Mactaggart (Slough) (Lab): I, too, welcome the greater transparency that today's report involves. It shows us that the recovery is genuinely fragile. When I spoke just last week to a company in my constituency in one of the sectors in which Britain leads the world-bio-pharmaceuticals-I was told that manufacturing investment had been moved to countries that were investing publicly in their companies, including from Britain, where it was not possible to secure such investments. How will the Chancellor's Government ensure that such disinvestment, caused by a lack of public support, does not continue to create more unemployment and a weaker recovery for Britain?
First, let me thank the hon. Lady for welcoming the creation of the Office for Budget Responsibility-I should have thanked the hon. Member for Leeds West (Rachel Reeves) for that as well. The change is a genuinely revolutionary step forward in the making of Budgets that fits with a wider agenda of
trying to bring more transparency to the way that the Government do their business. On the point about investment, the hon. Member for Slough (Fiona Mactaggart) is right to point out that there was a fairly dramatic fall in investment under the Government whom she supported, but I would say this: the sustainable answer to the problem is a strong private sector recovery, and that is what we all have to work towards.
George Freeman (Mid Norfolk) (Con): Does my right hon. Friend agree that the real significance of today's independent report is the revelation of the extent of the structural deficit, with debt interest alone forecast to rise to £67 billion, strangling growth and enterprise, and at the same time destroying new Labour's core claim to be the party of economic competence?
Mr Osborne: My hon. Friend is right- [ Interruption. ] I see one of the leadership contenders barracking from the Opposition Benches. I do not know whether the right hon. Member for Doncaster North (Edward Miliband) wrote the speech for the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) in which he told the Labour party conference in 1996:
"Losing control of public spending doesn't help the poor".
Mr Andrew Love (Edmonton) (Lab/Co-op): Does the right hon. Gentleman accept that a major contributor to the reduction in the growth forecasts for next year is the increasingly gloomy situation developing in Europe? Is he at all concerned about the competitive austerity that is breaking out across Europe? Is he also concerned that, if he goes ahead with the programme that he is outlining, we might face a double-dip recession as a consequence?
Mr Osborne: I suspect that everyone in the House is concerned about the situation in the eurozone, but let us be clear what has brought that about. It is a result of market concern about the sustainability of public finances in eurozone countries such as Greece. Those countries are having to take action to reassure markets and therefore keep their interest rates lower. I think that interest rates in Greece rose to more than 10% higher than those of other eurozone countries at one point. That is what happens to countries that do not get a grip on their public finances, and I want to ensure that no question mark is ever put against the name of the United Kingdom.
Richard Harrington (Watford) (Con): The complacency of the former Chancellor of the Exchequer about the small reduction in the expected budget deficit is rather like my saying that I am losing weight because I missed breakfast. We want clear, credible plans to deal with the budget deficit, and we need to know what they are as soon as possible.
Kelvin Hopkins (Luton North) (Lab): May I first welcome you to your new post, Mr Deputy Speaker? Will the Chancellor confirm that budgetary policy will remain the responsibility of the Government, who will be fully responsible to Parliament in this Chamber, and that it will not be dictated by the European Union or any of its institutions?
Mr Osborne: Before I answer the hon. Gentleman, I, too, should welcome you to the Chair, Mr Deputy Speaker. [Hon. Members: "Hear, hear!"] My several visits to Chorley during the general election seem only to have helped you to return to this place. It is good to see you here in the Chair.
In answer to the hon. Member for Luton North (Kelvin Hopkins), of course I want the elected British Government and the elected House of Commons to have complete control over the tax and spending decisions that affect our country. One way of doing that is to ensure that we never give rise to market concerns about our ability as a country to live within our means. That is the way to retain national sovereignty. We have seen what happens when other countries lose that sovereignty to the markets.
The hon. Gentleman asked specifically about the European Union, and I shall make two observations about that. First, the Budget this year and in all future years will of course be presented first to the House of Commons before being presented to anyone else. Secondly, I know that he will be interested in this and, before those in my party who are interested in these subjects get hold of this fact, I should let the House know that, under the deal negotiated by the right hon. Member for Kirkcaldy and Cowdenbeath and the other former Prime Minister, Tony Blair, the British contributions to the EU budget are set to rise from £3 billion in 2008 to £10.3 billion in 2014.
Sajid Javid (Bromsgrove) (Con): My constituents, like millions of people up and down the country, are very concerned about the direction of mortgage interest rates. Does my right hon. Friend agree that unprecedented transparency in our national finances of this kind will increase our credibility in the global financial markets and help to keep interest rates lower for longer?
Mr Osborne: My hon. Friend is absolutely right, and it is worth reminding ourselves that the OBR June 2010 pre-Budget report is based not only on the previous Government's tax and spending measures and decisions, but partly on the lower interest rates earned by the current Government in the decisions and announcements we have made over the previous month or so. That is why Sir Alan says in his forward that
"the fiscal path assumed"
"would lead to higher interest rates and so lower economic activity ".
"Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions."
Mr George Mudie (Leeds East) (Lab): Has the Chancellor seriously come to this House and told us he does not have any concerns or see any danger of high unemployment or damage to the economy in taking a short-term approach to clearing the structural deficit?
Mr Osborne: We have demonstrated that the OBR, alongside some of the other things we have done, is a commitment to the long-term sustainability of the British public finances, and I remind the hon. Gentleman of the following words of the Governor of the Bank of England:
"The most important thing now is for the new Government to deal with the challenge of the fiscal deficit. It is the single most pressing problem facing the United Kingdom".
Penny Mordaunt (Portsmouth North) (Con): One of the consequences of the previous Chancellor playing fantasy forecasts with this country's growth projections is that the men and women of my constituency-and, I am sure, of elsewhere-feel they have been treated with contempt and as mere collateral damage of an election campaign. It is vital that we restore these people's trust and confidence in Treasury reporting; it is, after all, they who are going to put this country back on its feet again. What will this Treasury team do to support that?
Mr Osborne: First, I will tell the Prime Minister what I am up to, because another thing that emerged over the weekend was that the former Chancellor of the Exchequer hid the numbers not only from the rest of the country, but from his own Prime Minister.
Chris Williamson (Derby North) (Lab): May I begin by congratulating you, Mr Deputy Speaker, on your elevation to your new role? Will the Chancellor explain why he is obsessed with pursuing economic policies that failed in the 1930s, failed in the 1980s and failed in the 1990s?
Gavin Barwell (Croydon Central) (Con): If I heard my right hon. Friend correctly, the policies of the previous Administration will lead to us spending an incredible £67 billion on debt interest alone by the end of this Parliament. In the interests of transparency, may I encourage him to put that number in context for the wider electorate, so that we know the amount per household in relation to the amounts we spend on our NHS and school system?
The Secretary of State for Energy and Climate Change (Chris Huhne): I welcome you to your position, Mr Deputy Speaker. The House will wish to join me in expressing our deepest sympathy to those bereaved or injured in the explosion in the gulf of Mexico on 20 April, and to all the individuals and communities affected by spilling oil or fearing that they will be affected by it over the days and weeks to come. Our thoughts must be, first, with them.
On 20 April, an explosion and subsequent fire on board a drilling rig operated by Transocean under contract to BP in the gulf of Mexico tragically killed 11 workers. On 22 April, the rig sank. On the sea bed, 1,600 metres below, substantial quantities of oil were leaking into the ocean-the blow-out preventer, which should have sealed the leak, failed. The causes of the accident are now subject to a US presidential commission of inquiry, and to civil and criminal investigation.
There has never been such a large leak of oil so deep in the sea. Attempts by BP, under the direction of the US authorities, to seal the leak were not successful. The company then pursued a strategy of capturing as much oil as possible, and in recent days more than 15,000 barrels a day of oil have been recovered. However, it is also thought that the leak is worse than previously believed. The US Government's estimate of the flow of the leak is now 35,000 to 40,000 barrels per day. BP hopes to be able to increase significantly the amount of oil that it is capturing, but a very large quantity of oil continues to be released into the sea. Moreover, the leak will not be fully staunched until August at the earliest, when the first relief well, which BP is already drilling, should enable the original well to be plugged.
An enormous operation is also taking place to address the environmental impact of oil that is already in the water. Working under Admiral Thad Allen of the US Coast Guard, more than 2,000 boats have been involved, skimming the water and using dispersant chemicals. Thousands of workers and volunteers onshore are removing oil and maintaining coastal defences. The House will wish to join me in paying tribute to those involved in that work.
We understand and sympathise with the US Government's frustration that oil continues to leak at the rate that it does. In order for us to appreciate the scale of this environmental disaster, I should point out that each week a quantity of oil equivalent to the total spillage from the Exxon Valdez is escaping into the gulf of Mexico. The US Administration have said that BP is doing everything asked of it in the effort to combat the spill. We, of course, look to the company to continue in that, and we will do everything we can to help. The key priority must be stopping the environmental damage. In their telephone conversation at the weekend, President Obama reassured the Prime Minister that he has no interest in undermining BP's value and that frustrations in America have nothing to do with national identity.
Hon. Members will remember that in 1988 the Piper Alpha rig in the North sea exploded, with 167 fatalities. Following that disaster, our regulatory regime was significantly tightened, and we split the functions of licensing and health and safety in the UK. The US has
announced that, in future, separate organisations will deal with those functions in the US, and we hope that we have some experience to offer of building and operating such a system. Officials from my Department and from the Health and Safety Executive have been discussing that with their US counterparts.
It is my responsibility to make sure that the oil and gas industry maintains the highest possible standards in UK waters, and I have had an urgent review undertaken. It is clear that our safety and environmental regulatory regime is already among the most robust in the world, and the industry's record in the North sea is strong. However, as exploration begins in deeper waters west of Shetland, we must be vigilant. Initial steps are already under way, including a doubling of the Department's annual environmental inspections of drilling rigs. I will also review our new and existing procedures as soon as detailed analysis of the factors that caused the incident in the gulf of Mexico is available. That will build upon the work already begun by the newly-formed Oil Spill Prevention and Response Advisory Group. Given the importance of global deep-water production during our transition to a low-carbon economy, I will also ensure that lessons and practice are shared with relevant regulators and operating companies.
I shall now discuss the position of BP. It is hugely regrettable that the company's technical efforts to stop the spill have, to date, been only partially successful, but I acknowledge the company for its strong public commitment to stand by its obligations, to halt the spill and to provide remedy and payment of all legitimate claims. As BP's chairman has said, these are critical tasks for BP, and it must complete them in order to rebuild trust in the company as a long-term member of the business community in the United States, the United Kingdom and around the world.
BP remains a strong company. Although its share price has fallen sharply since April, it has the financial resources to put right the damage. It has exceptionally strong cash flow, and it will continue to be a major employer and a vital investor here and in the United States. In many ways, BP is effectively an Anglo-American company with 39% of its shares being owned in the US, against 40% in the UK.
There has been much speculation in the press about the impact on UK pension funds and about whether the company will pay a quarterly dividend. That is entirely a matter for BP's directors, who will no doubt weigh all the factors and make a recommendation to their shareholders that is in their best interests, which of course include the best interests of many UK pension funds. Many citizens have real and legitimate worries about their pensions, but I would like to reassure the House not only that BP is financially sound, but that pension funds that hold BP shares generally hold a very diverse portfolio of assets and that their exposure to a single company, even a company as economically important as BP, is limited.
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