To be published as HC 575-ii

House of COMMONS



Treasury Committee

Spending Round 2013

Thursday 11 July 2013

Rt Hon George Osborne MP and Sharon White

Evidence heard in Public Questions 206 – 328



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Oral Evidence

Taken before the Treasury Committee

on Thursday 11 July 2013

Members present:

Mr Andrew Tyrie (Chair)

Mark Garnier

Stewart Hosie

Mr Andy Love

John Mann

Pat McFadden

Mr George Mudie

Mr Brooks Newmark

Teresa Pearce

Mr David Ruffley


Examination of Witnesses

Witnesses: Rt Hon George Osborne MP, Chancellor of the Exchequer, HM Treasury, and Sharon White, Director General for Public Spending, HM Treasury.

Q206 Chair: Chancellor, thank you very much for coming to see us this morning. You have deposited in the Library of the House of Commons a report by the Permanent Secretary into the pre-briefing or pre-releasing of Budget information. You put that in there a few moments ago, and it has just been circulated to the Committee, which explains the delay to the start of this meeting. There have been expressions of regret in the Committee about the fact that we have not had a chance to absorb this. We do not want a prolonged discussion of this, because it would deflect attention from what we feel are far more important issues of public expenditure control and the decisions that have been taken in the review. It is possible that colleagues may want to come back to this later in this session or in a subsequent session but, in the meantime, is there anything you want to say on this?

George Osborne: First of all, I should introduce Sharon White-although she was here earlier in the week. She is the Director General for Public Spending in the Treasury.

I have written to the Speaker today with the conclusions of the report that the Permanent Secretary to the Treasury, Sir Nicholas Macpherson, did into the pre-release of the Budget to the Evening Standard. I apologise for the fact that we only emailed it to the Committee half an hour ago. The report was finished yesterday, and I had a dilemma whether to produce it after this hearing, in which case you might say that I had deliberately done that, or to get it out as quickly as possible and copy it to the Committee.

Nicholas Macpherson has looked at the practice of pre-briefing information about the Budget to the media. He points out that this has gone on for a very long time. Chancellors pre-recorded Budget broadcasts with the BBC over many decades. The report makes clear that the approach to the embargoed briefing of information that was taken for Budget 2013 was not new and that, in all important respects, it appears the same as that taken at least since the March 2010 Budget, which was the last Budget under the previous Administration.

However, the central recommendation, which I accept in full, is that the Treasury introduces a ban on the pre-release of the core of the Budget and the autumn statement-that is, the economic and fiscal projections, the fiscal judgment, individual tax rates, reliefs and allowances. I am confident, as I think is Sir Nicholas, that this will prevent a repeat of what happened and the disservice that that did to Parliament.

Q207 Chair: What justifies the release of information that is non-core?

George Osborne: Inevitably, before a Budget, it has now become the practice, as carried out by my predecessors, that Chancellors do interviews. For example, I did an interview on the Andrew Marr programme, like Alistair Darling before me. I often talk about the themes of the Budget and explain the context in which the Budget is happening.

What is the key component of the Budget? It is the forecasts, it is the tax rates and it is the allowances. That is the meat of the Budget, and that is what Parliament would expect to hear first. That is specifically what we are making clear should not be pre-briefed. That information was pre-briefed, including in March this year, to certain news organisations, principally broadcasters, but also the Evening Standard. That is what was released early, with a breaking of the embargo by the Evening Standard, for which it apologised. It is sensible to ban the release of that information so that we do not get a repeat of what happened this year, for which I have already apologised to the House.

Q208 Chair: My question was about the rest of the Budget-the non-core-which is another way of asking, "Why don’t you stop doing interviews in the period immediately prior to the Budget, like Chancellors used to do?"

George Osborne: I think it is perfectly reasonable, in the modern age, to try to explain the context in which a Budget happens. We no longer have the closed economy of the 1950s, when the Budget was the be-all and end-all. The Budget is one of a number of economic statements that we make during the year. It has been perfectly reasonable for myself, for Alistair Darling and for others to try to explain the context in which the Budget is happening, just as Government Ministers constantly seek to explain the context in which Government policy is made.

When we think about the Budget, we think principally of the forecasts and tax rates, the allowances and so on. That is, after all, the information that everyone is in search of. I think that this approach will protect the integrity of the Budget and the integrity of Parliament in hearing this information first.

The Permanent Secretary considered whether we could have a pre-release to certain media organisations. The ONS pre-releases statistics, including very sensitive statistics on GDP and, in effect, locks journalists into a room, so that they have that information and they are ready at 9.30 to go with the information. We considered that. That is not sensible with the Budget, not least because you would expect media organisations not then to come and listen to a Budget speech that might be an hour long already in possession of knowledge about what is in the Budget. We have gone for the belt-and-braces approach of this ban.

Q209 Chair: We will find out later whether it is belt and braces and whether we carry on having pre-briefings, as we have had in recent decades, on what could at least be claimed to be non-core. Let us hope that we do not.

Can I get on to public spending? You have delivered what can only be described as a successful review, because you have kept within the envelope, which, bearing in mind the tightness of that envelope, is a remarkable achievement. I think that most independent commentators agree with that remark. How closely involved were you in this? How many bilaterals did you have with senior colleagues, and in which Departments were they?

George Osborne: Obviously, I was intimately involved in the entire process, but worked exceptionally well with the Chief Secretary to the Treasury-we worked as a team. I was always clear, particularly because it is a coalition, although I think this would apply in a single-party Government, that I was not the immediate court of appeal for someone dealing with the Chief Secretary. In other words, just because they had had a difficult meeting with the Chief Secretary, they could not pick up the phone to the Chancellor. I made it clear to both Conservative and Liberal Democrat Cabinet Ministers that they had to deal with the Chief Secretary. Then, the Chief Secretary and I would discuss the settlement, and indeed discuss it with the Prime Minister and the Deputy Prime Minister, so it was a collective decision of the coalition.

We worked very closely as a team. All the key bilateral meetings were carried out by the Chief Secretary. Ultimately, of course, if there is a fundamental dispute between the Chief Secretary and the Minister concerned, they could put in a call to me, but they did not receive much quarter, because I stood behind my Chief Secretary, which I think is what a Chancellor needs to do.

Q210 Chair: How many colleagues appealed to the Prime Minister?

George Osborne: I am not aware of any particular appeals to the Prime Minister.

Q211 Chair: You did not find the Prime Minister having a word with you and saying, "So and so has been on to me", or, "Michael has been on to me".

George Osborne: The Prime Minister took his duties as First Lord of the Treasury very seriously, and backed up the Second Lord of the Treasury and the Chief Secretary. The Prime Minister-

Q212 Chair: It depends whether he had to. I am asking whether he had to. That was my question.

George Osborne: As far as I am aware, unless there was a phone call or conversation that I was unaware of, there were no appeals.

Defence was handled as a separate process from some of the other Departments, in that the Prime Minister had set an ambition, which was that there would be no reduction in the front-line capability of our military. Right from the start, he had set that condition. In order to ensure that everyone would be satisfied with that, the Cabinet Secretary led a review of efficiency within the Department-there was a Cabinet Secretary-led review. That avoided what we had seen in previous Governments, particularly on defence-the appeal of the Defence Secretary and the service chiefs to the Prime Minister. That was avoided, because there was an agreed process for assessing what would and what would not impact on front-line military capability.

Q213 Chair: What you are describing sounds remarkably like a surgical operation, with very little blood-scarcely a display of the instruments of torture, and still less their use. There was not even a Star Chamber. It is quite remarkable, bearing in mind the unprecedented scale of the cuts, which you have not actually described-but they are large.

What really caused this, Chancellor? Why have we not been where we normally are in mid-term with spending rounds, with disconsolate and, indeed, very nervous spending Department heads panicking about their careers and how they will sell these cuts?

George Osborne: It is partly because the Government has set out deficit reduction and expenditure control as one of its absolute core purposes-one of its central missions of the Parliament. Secondly, everyone is aware of the international context in which we are operating, of the market pressure. Thirdly, there is a genuine collegiality through the Cabinet. Fourthly, it is a curious feature of coalition that it requires more formal processes and less informality, so that both sides of the coalition feel they are being fairly dealt with. As a result, there is less scope for going round the formal processes.

I try to set out a long time in advance what we are intending to do, certainly much further in advance than most of my predecessors, in other words to set envelopes clearly in advance and establish dates for these events clearly in advance. It has been the case until recently that one would not know the Budget date until a few weeks beforehand-sometimes three or four weeks beforehand. I set out these dates months in advance. The formality of a coalition allows a process to develop.

I should pay tribute to the Treasury officials and Sharon and her team, who did a fantastic job, and have been doing a lot of preparatory work for this spending round.

Chair: Okay-we will leave it there for the time being. Certainly, something unusual has happened.

Q214 Mr Love: May I turn to the cap on annually managed expenditure? The Institute for Fiscal Studies has said that the cap will not address those elements of annually managed expenditure that are currently expected to rise, and that spending on working-age social security, which will be covered by the cap, is actually due to fall. Is the proposed cap realistically going to make any difference whatsoever?

George Osborne: Yes, I think it will. First, working-age welfare spending is falling, because of conscious decisions by this Government to bring it down. The other areas of AME spending that are increasing all have different control frameworks. There is debt interest-we have to pay our debt interest. The best control framework is to try to keep your market interest rates at a competitive rate relative to other countries, and also to make sure that you are bringing the deficit down.

Pension expenditure has increased-expenditure on the state pension. I think that the best control mechanism that we have for that is the pension age. In Parliament at the moment there is a Bill that will create a mechanism that links the increase in the pension age to longevity in our society.

It is perfectly reasonable to take the areas of AME spending that do not have their own control frameworks and to introduce this cap. I think the cap will be effective. The IFS suggested that it might be better to individually cap individual benefits. I do not agree with that. I think it is perfectly reasonable for a Government and indeed a Parliament to make a choice about the collective expenditure on working-age benefits and pensioner benefits outside the state pension. That provides us with the kind of choices that we are elected to exercise.

Q215 Mr Love: I am not clear. We have called it a cap, but is it a target or a cap?

George Osborne: It is a cap that we will set in the Budget next year. If the Government breaches the cap-it is not illegal to breach the cap, if you see what I mean. It is not, in that sense, like a US Congress debt limit. It merely requires the Government to openly and publicly explain that it is breaching the cap that it told everyone it was going to stick to. You can imagine a situation where a Government-

Mr Love: Chancellor, that sounds like a target to me.

George Osborne: It is not. It a cap because, if you breach the cap the OBR will hold you to account for that, and you have to come and publicly explain to Parliament and to the public why you have breached the cap, and everyone knows you are increasing welfare spending. Working-age benefits spending almost doubled over the last decade, yet I am not sure that that was well understood by either Parliament or the public. It would now be extremely well understood. Of course, if a Chancellor wanted to come to the House of Commons and say, "I am breaching my welfare cap and these are the reasons why I am doing it", he or she would either win that argument or not-but at least they would have to make that argument.

Internally within Government, within the Treasury and the DWP, principally, this will act as a very constricting mechanism that forces-this is no disrespect to the DWP. They are very concerned about managing their DEL budget but, regarding their AME budget, they have much less incentive to manage. It is not controlled. This would impose a control on a very large part of Government spending.

Q216 Mr Love: That sounds exactly like comply or explain. There has been a lot of comment on whether or not there is going to be a firm ceiling on demand-led expenditure. Most people think that it is unworkable. What is your view about having a firm ceiling on expenditure?

George Osborne: It is a cap and, if the Government breach it, they have to explain and publicly account for that. I think that is the correct approach in a democracy. I am not asking for a debt limit of the kind that the US Congress has. This is a different kind of thing, which is more in tune with our parliamentary democracy, but it forces Governments to explain why they are spending more on welfare than they said they were going to spend. They will not be able to use straightforward cyclical explanations because we are removing the most cyclical benefits such as JSA.

Q217 Mr Love: So you will not be expecting Departments to reduce the amount of a benefit or the eligibility criteria in order to stay within the cap.

George Osborne: That would be precisely the choice that a Government would face. If welfare spending was getting out of control or breached the cap and the Government did not want to explain why it was breaching its own cap, it would have to take difficult decisions, as indeed this Government has already taken, on eligibility and on benefit rates.

Crucially, if you express a concern that the cap is not tough enough, this cap is set in nominal terms and it will take into account forecast inflation, but if inflation is much higher than forecast, that will present real choices and challenges to the Government. The Government can either say, "I’m sorry, House of Commons, I’m sorry, public, but inflation is higher than forecast and we are going to go with that", and everyone will then see what is happening, or they will say, "We will underrate working-age benefits", for example, as indeed this Government has done and has passed legislation to do. That is a real choice, and it will be made openly and publicly, rather than what happened in the years leading up to the crash, which was a stealthy increase-a massive increase-in the size of the welfare state and the size of welfare spending, which was buried away in the back of these documents.

Q218 Mr Love: We are well aware of the increase in annually managed expenditure, but what I am not clear about is whether you are simply relying on comply or explain. In other words, Departments can come and say, "I am terribly sorry, but annually managed expenditure has increased", or are you demanding that they take action on eligibility criteria or on the level of a benefit in order to keep within the cap?

George Osborne: I am saying that is the choice. I am saying that the Chancellor can either breach-

Q219 Mr Love: Tell us which choice you make.

George Osborne: I am intending to stay within the cap-I do not answer hypothetical questions.

Chair: Do you have one more?

Q220 Mr Love: I have several more. You mentioned earlier about the national pension and increases in the age at which you receive pensions. When we interviewed the Chief Secretary on Tuesday, he said that he sought to control the cost growth of the basic state pension by bringing forward increases in the retirement age, and he was sure that that would continue. What plans do you have to increase the state pension age, and when will you be bringing those forward?

George Osborne: We have brought them forward. In fact, it was discussed last week in Parliament. The pension bill has within it a proposal for a mechanism whereby changes in life expectancy are assessed, and that feeds through to changes in the pension age. As a Government, we have already taken the decision to bring forward the increases in the pension age to 66 and 67. The previous Government set increasing pension ages in legislation.

Q221 Mr Love: There was a tantalising line in the response from the Chief Secretary, who said he was sure that it is a process that will continue in the future, rather hinting that there may be further changes. Can you elucidate for us?

George Osborne: I do not think that this is any great hint or secret. This is actually in the published legislation that the Parliament is currently discussing. It is there in black and white. We are creating a mechanism that will review increases in life expectancy and enable the pension age to be adjusted accordingly.

Q222 Mr Love: So, outside of what the published figures are, you have no intentions of increasing that or bringing forward changes sooner than expected.

George Osborne: Our intentions are set out in the legislation that Parliament is currently discussing. By the way, this is an approach that has won quite a lot of support from international bodies.

Q223 Mark Garnier: Chancellor, can I turn to the area of ring fencing of budgets? You will be well aware that there is quite a lot of commentary in the press regarding the effects that this is having on certain Departments and, more broadly speaking, the shape of the state. Is the ring-fencing of budgets, and the effect that it is having, a conscious decision by yourself, with the agreement of Ministers, to change the shape of the state, or is it merely an unforeseen circumstance of trying to protect certain Departments?

George Osborne: It is an expression of conscious political choice. It is an expression of the political desire by the Government to protect NHS spending, to protect schools spending and to hit our international development target. Much is made of the ring-fencing but, ultimately, it is just an expression of political will by Government and Parliament, in as much as Parliament votes the estimates. These are areas of public spending that we want to relatively protect.

Q224 Mark Garnier: But it is changing the shape of the Government to a certain extent.

George Osborne: It is not unreasonable, when you have an ageing population and developments in medical technology, that you are seeking to increase in real terms and protect NHS spending relative to other Departments. There are reports today about the pressures on health spending.

What is interesting, and perhaps not surprising in a democratic country, is that the biggest ring fence of all, one that has far and away the most impact on the decisions that we have had to take in this spending round, which is the health service ring fence-that pretty neatly mirrors what the British public want to see protected, when they are asked. It is an expression of the priorities of the country. I would say that that is the ring fence that requires difficult decisions in other Departments.

Too much is made, frankly, in the political debate, about the impact of the aid commitment. It is something that I feel very strongly about. I am proud that this country is meeting its aid commitment. I do not think that it forces the same difficult decisions on other Departments that the NHS ring fence forces.

Q225 Mark Garnier: I think that is right. Aid is 0.7% of GDP, as you rightly point out. There are, though, accusations, certainly within the media, that there are some Departments that are trying to meet their budgets by shifting some of their responsibilities on to other Departments, in particular DCLG in terms of the social services budget, having the effect at the front line that you are now ending up with bed blockers because of the funding of social services. Also, the Ministry of Defence is passing some of the responsibility for patients on to the Department of Health. Do you think these accusations that this is shifting budgets around by stealth are unreasonable, or do you think that there are some strange things going on?

George Osborne: There was a proposal early on in the spending round to shift some budgets into the health ring fence-medical training, medical research and Army medicine. Some of these surfaced in the press. We rejected those. We did not do those. Medical research and medical training stay in BIS, and Army medicine stays with the Ministry of Defence. We rejected precisely what your question implies might have been tempting for me to do, which was to tuck things into the ring fence.

The one area where we have undertaken a major reform is in social care. That is because-and it has been aired today in the reports on the NHS-the more you can invest in preventative care, the more you can make sure that someone who should be in a social care bed is in a social care bed rather than in an A and E ward. That is a big saving for the NHS.

That social care reform is not just about money. It is also about involving the NHS with local authorities in the commissioning of care services, which they were not previously involved in, so there is a real reform there. That has been near universally welcomed by everyone in the health and social care world. I have had some very positive feedback from the charities involved. If there had been any suggestion that we were doing this for financial reasons, I would have got a warning from the people who care most about this subject but, actually, it has been very broadly supported. It is precisely this sort of thing where we want government to be working more closely together, and where, as we all know as constituency MPs, too many of our constituents fall between the cracks of two services.

Q226 Mark Garnier: It is interesting that you choose health and the change of approach in order to go for preventative rather than curing. There are some accusations that, as a result of ring-fencing certain budgets, there is no real drive for efficiency within those Departments that have been ring-fenced so, while I appreciate what you are saying about health in terms of the different approach, can you demonstrate that the Department of Health has tried to drive managerial efficiencies? Ditto with DFID.

The other interesting thing that people are concerned about is the fact that pensioners have been ring-fenced, probably for quite reasonable reasons but, nonetheless, we are not taking difficult decisions with pensioners.

George Osborne: I am not sure that pensioners would like the idea that they are being ring-fenced. None of these services is immune from the demand for better value for money. Far from it. The NHS has a real-terms increase, but that is still a challenging budget when you have an ageing population and new medical technology, and when there is pressure on health care costs around the world to increase. They have undertaken a major programme of reform, the so-called QIPP savings-£20 billion of savings that they need to find-and all sorts of other savings that we have initiated in things like procurement and through a reduction in administration.

In education, there has been a big reduction in the Department for Education’s administration budget. The cost of building a new school, for example, is 40% less than it was under the building schools for the future programme. There is also an aggressive programme of efficiency in DFID.

On pensioners, I would not use the phrase "ring fence", but I would say that we have made a commitment to the pensioners that we are going to have a triple lock-we are going to give them a generous state pension-and we live by that commitment.

All these things force choices elsewhere, particularly at a time when money is short, but it is a political expression of what the Government wishes to achieve and of the support it wants to give to society.

Q227 Mark Garnier: I have one last question, which is on a slightly different subject: your proposals for education in terms of reducing the difference between some of those-in central London, for example-boroughs which get a large amount of per pupil funding, and those in my county, for example, where we are 148th out of 156 shire counties in terms of per pupil funding. Certainly, your announcement was very much welcomed by those of us in the F40 group, but there is a little concern that the changes that will be proposed in the future may take quite a long time to be driven through. This progression to mean over the long term may be over a period of 10 years. Have you got any idea of what sort of period you will be proposing in order to try to reduce this imbalance?

George Osborne: I do not want to pre-empt the work that the Secretary of State for Education is doing in this space, or the consultation that he will launch and the engagement with Parliament that he will have. We have set out the ambition. We will obviously want to do this in a way that achieves a smooth transition from what I think everyone accepts is a rather erratic funding pool that we have at the moment, where children from very similar or indeed identical backgrounds in different parts of the country can get very different sums of money. It is not a kind of urban/rural issue, by the way.

I came with this example. A schoolchild from a deprived background at a secondary school in Northamptonshire can get £1,700 more than a similar child in Derbyshire. We must do it in a way that does not have a disruptive impact on education in Northamptonshire, in this case. We are confident that we can do that. It will of course involve a transition, and it will not be done overnight, but I will leave it to the Secretary of State to spell out how that is going to be achieved.

Q228 Mr Mudie: Going back to the discussion we had about the cap, the Government portrays people as seeking to get benefits that they do not deserve. Every Government is aware of and pays lip service to-no, my question is not in that brief, so you will not see it.

George Osborne: They are all handwritten.

Mr Mudie: I am just interested where you get the brief from and the questions from-whether you have seen our brief. This question is not in the brief, Chancellor.

George Osborne: I have anticipated all sorts of things, which I suspect will not come up-

Mr Mudie: I am sure you have.

George Osborne: I try to work out what I would ask, but you do not always ask what I would ask.

Mr Mudie: You overestimate our intelligence-we cannot match you, Chancellor.

I was just saying: every Government pays lip service to people who are on benefits and are entitled to benefits-when I say on benefits, they are entitled to benefits, but they do not claim, particularly pensioners. We are all very sad that they eke out an existence, occasionally, when they could be helped, and the state wants to help them. Does your cap not encourage the DWP not to seek out, not to advertise, not to look for and not to encourage people who are entitled to benefits? You want them to have benefits, but the Department says, "If we actually did this, we are going to breach the cap", or, "We will have to look at other expenditure".

George Osborne: The short answer to that is no: it certainly should not. It is not good policy to have a benefit and then not encourage people to take it up. I would much rather control eligibility and rates, rather than try to massage take-up. This Government, like its predecessor, has a big advertising campaign to encourage, for example, the take-up of tax credits, and that operates in May and June. We have not abolished that. We are not trying to massage take-up. We are trying to control welfare spending and force choices on Governments in the open space.

Q229 Mr Mudie: The Government debt is estimated to be just short of 80% of GDP this year. It is predicted to rise to a peak of 85.6% in 2016-17. However, one of our witnesses on Tuesday, Professor McWilliams, forecast that it would peak at 92.3%, not in 2016-17 but in 2017-18. Do you see Professor McWilliams as being too pessimistic? Would you confirm to the Committee your confidence that your targets and your figures will be reached?

George Osborne: The forecasts are not my forecasts. They are the forecasts of the OBR.

Q230 Mr Mudie: Do you accept them?

George Osborne: Put it this way: I have the option of rejecting the forecast, when it is produced at the time of the Budget.

Mr Mudie: Do you accept the OBR’s forecasts? You have framed your Budget with their support, in the light of their forecasts.

George Osborne: Yes, I do accept their forecast.

Mr Mudie: Good.

George Osborne: I chose not to reject it, so I accept it.

Q231 Mr Mudie: I am just asking a straightforward question: do you think our expert is being too pessimistic? That is a fair question. Therefore, do you confirm your figures to the Committee?

George Osborne: I set out the OBR’s forecast twice a year. I do not give a running commentary on the forecast in between those events, and I respect the independence of the body that Parliament has created. I have taken Chancellors out of the forecasting business. Of course, that does not mean that there are not lots of other people in the forecasting business, but there are official forecasts produced by the OBR. I always have the option, before a fiscal event, of rejecting those forecasts, but I did not choose to do so at the time of the Budget.

Q232 Mr Mudie: On debt, you did forecast when it would fall in the fiscal targets, and you have dropped that one. So you do forecast. You are not willing to stand by the figures in your Budget book that say that, in 2016-17, debt will peak at 85.6% of GDP. It is in your Budget book.

George Osborne: I think that you are putting words into my mouth

Mr Mudie: I put them into your Budget report.

George Osborne: Of course this is my Budget report, and I have accepted the forecasts of the OBR but, in between the Budget and the autumn statement, I do not give a running commentary on the forecasts. People can see the forecasts that I have produced, or rather the OBR’s forecasts that I have accepted. That is sensible, rather than the finance minister giving a running commentary.

Q233 Mr Mudie: Okay-so, you will not give me an answer. Do you stand by this year’s debt figures?

George Osborne: When you say, "Do I stand by them?", I publish them, they were the OBR’s figures-I published them, and I chose not to reject them. I published them at the time as the Budget in March, and I will publish a new set of forecasts in the autumn. It will be open to me to reject the OBR’s forecasts, but I suggest that there would be a very high bar to rejecting them.

Mr Mudie: You have thrown me, Chancellor. Here is the Chancellor of the Exchequer, who stands at the Dispatch box and gives the fiscal figures, and he is invited, two months later, to the Treasury Committee, but he will not stand by the debt figure that he gave two months ago to Parliament.

George Osborne: I do not know what you mean by "stand by". I gave those forecasts in March; of course I-

Mr Mudie: Do you stand by them?

George Osborne: I stand by my Budget.

Mr Mudie: Well done.

George Osborne: But I do not give a running commentary on the forecasts in between fiscal events. I do not say whether we are likely to come in above forecast or below forecast in between the two fiscal events. It would be grossly irresponsible of me to do so. Most Chancellors have tried to avoid it in the past, even when they were doing the forecasts themselves. I certainly want to avoid it when we have an independent body that does it anyway.

Q234 Mr Mudie: Are debt servicing costs going down? If not, when do you anticipate it? Do you anticipate keeping the promise that you made, not the forecast that you made, that, by the end of this Parliament, debt servicing costs will be lower?

George Osborne: The cost of debt interest to the state has gone up, but it is significantly below what it was forecast to be in the plans that I inherited from my predecessor.

Q235 Mr Mudie: Yes-but I will ask the question again. Are debt servicing costs going down, as was promised would happen by the end of this Parliament? Debt costs are going up at the moment.

George Osborne: I do not think that I ever-

Q236 Mr Mudie: In the two years to go before your promise-not your forecast, but your promise-that they will go down, are they going to go down at the end of this Parliament? If not, Chancellor, fair enough, the world moves on, but when do you anticipate that debt servicing costs will go down?

George Osborne: Debt servicing costs will go down when the national debt falls as a percentage of our economy, and that will happen when we get our deficit under control and our budget close to balance. Debt interest will continue to increase while we have a high budget deficit, so what we have to do is to get the deficit down, and I look forward to your support for all the measures that we take to get that deficit down.

However, crucially, market interest rates have been lower than were forecast, so the cost of servicing that debt is less than it was forecast to be. Indeed, the area of Government spending where, relative to the last Government, we have made the biggest saving was on debt interest, which I am sure you would applaud.

Q237 Mr Mudie: You need everybody’s support, because you are clearly not doing it on the deficit. The deficit has stayed the same for three years. You have given up until after the next election. Are you not concerned-

George Osborne: Interestingly, opposition to what I am doing on the economy is crumbling. That is another way of saying that I am getting more support for what I am doing.

Mr Mudie: I do not think that it is. Your debt forecast-

Chair: You can have one more go and, after a quick reply, we will move on.

Q238 Mr Mudie: Professor McWilliams simply put the proposition that it was worrying for us not to get a situation where the debt was falling because, with the rating authorities lowering our ratings, he felt that the markets, in his words, might reach the limit of their tolerance, and that might have an effect on foreign exchange, which works through to inflation. He saw the danger of a financial crisis. Do you have any worries about that?

George Osborne: I certainly believe that, if Britain does not show that it can live within its means and control its public finances, we would come under severe market pressure. That has been evident with lots of our neighbours who have come under severe market pressure. I think that the path that we are setting out to achieve that is the right path, and it is commanding global confidence. The ambition of all this is to get the public finances under control and to get the debt falling.

I started off in this job with an 11.5% budget deficit, when we were borrowing £1 in £4 that we were spending. The amount being added to the debt was a great deal. Now we are reducing the deficit and our borrowing has come down from about £160 billion to about £120 billion, so we have reduced the amount that we are adding to the debt. Of course I want to get the debt falling, and that is the purpose of the consolidation, not overnight but over a period of years.

Q239 Chair: We were discussing forecasting earlier. You would agree that forecasts are almost always wrong-that is one thing that we know for sure-so it was sensible to get out of the forecasting business. The forecasts of the Treasury have been no better than anybody else’s. Unfortunately, the public still believe in them, so you find yourself being criticised for not aligning yourself and not delivering on the forecast that was made by the OBR. What are you going to do to address that problem?

George Osborne: It has helped public understanding that there is now an independent forecaster, that there is not a suspicion that the Treasury is manipulating the forecasts for political advantage, and-

Q240 Chair: I am sorry to interrupt, but that implies that somehow the forecast might be better than before and less unreliable, whereas in fact we know that it is no less unreliable.

George Osborne: Robert Chote-I should declare that Sharon is married to Robert-has done a good job, in a series of interviews, of trying to explain to people what the forecast is and how you can come in below forecast or above forecast. Because it is an independent person who is explaining that, both to this Committee and to the public through the interviews that he does, people are not suspicious that it is a Chancellor trying to pull a political fast one.

Q241 Mr Newmark: Following on from what Mr Mudie said, the public still do not really understand the difference between debt and deficit. Notwithstanding what Mr Mudie has said, in very difficult circumstances you have, using simple terms, brought the deficit down by a third, but there is still a deficit, which means that we still keep adding to our debt. That is the challenge in communicating with the public.

Following up on Mr Garnier’s point, you have also managed to bring down the deficit while keeping to a promise of ring-fencing the NHS and taking, I think, 2.2 million of the lowest paid out of tax altogether. Over 24.5 million people have seen their basic rate of tax cut by £705. That is all good news through to 2015.

However, looking beyond 2015, there is still going to be a tension between spending cuts and rising taxes. The Institute for Fiscal Studies has stated, "We are on course not for sharing the consolidation 80% on spending and 20% on tax as the government originally planned but for an 85:15 split. Returning to an 80:20 split for the consolidation as a whole would mean a £6bn tax increase in the next parliament". How committed is the Government to an 80:20 split between cuts and increases in taxation?

George Osborne: The 80-20 split was a guide that we set out in 2010. I think that it was before this Committee that I said that it was not an exact number, but a guide based on the best international evidence that we have, and that has been reinforced by events around the world since. The further consolidation after the year 2015-16 is built into the tables as a spending reduction-a spending consolidation. I am clear that tax increases are not required to achieve this, and that this can be achieved with spending reductions. It is a coalition Government, however, and the document makes clear that both coalition parties are not, as a collective, signed up to the exact mix of spending and tax. What they signed up to is the path of deficit reduction-the path of borrowing, in effect. Of course, it would always be open to my coalition partners-we are talking about a post-election period-to advocate increases in taxes.

I am not sure where the Opposition is, because they say that they would match current spending but not capital spending. I do not know whether they have committed to these spending plans. I do not know whether they would have big tax increases-I suspect that they would, but that is for them to explain.

Q242 Mr Newmark: They have also said that they would increase borrowing to lower borrowing, but that is their Alice in Wonderland world of economics.

Do you see any room for manoeuvre for further tax cuts? I draw your attention to this. If we are trying to encourage investment, would you cut capital gains tax, for example, from, say, 28% to 20% to encourage more investment?

George Osborne: I am not going to speculate on individual taxes or tax rates. I do not think it is appropriate to do that between Budgets and autumn statements. I am a low-tax Conservative who believes that it would be good to have lower taxes, but they need to be sustainably lower, and I am not for deficit finance tax cuts that end up with you having to increase taxes a year or two later to make good the mess you have made of the public finances. The way to a sustainably lower tax economy is to get your public finances under control, and I have principally done that through constraints in public spending.

Q243 Mr Newmark: Notwithstanding the IMF doing a massive U-turn on their criticism of your strategy, listening to you, it sounds that there is still going to be a period of austerity going beyond 2015. The Cabinet Secretary is said to have warned that austerity may have to go on until 2017 or possibly longer. Do you agree with him?

George Osborne: That is a statement of what is in this book. This book sets out that, in 2016-17 and 2017-18, further consolidation will be required. We have not spelled out how that is going to be achieved. What this spending round did was spell out how it is going to be achieved in 2015-16. For those who want to commit to a similar path of deficit reduction to this Government, they would have to explain how they would achieve it. I have said that I think it can be achieved through spending consolidation, but there is no doubt that, whoever is in Government after the election, they are going to have to go on taking difficult decisions to get public spending under control and to get the deficit down to achieve what George Mudie says that he wants to achieve, which is to get the debt falling and to get the public finances under control.

Q244 Mr Newmark: What is your vision of the role and size of the state when austerity has finished?

George Osborne: I am not sure that this is a vision of the size of the state. I have always avoided giving a percentage of GDP as a target. In other words, the state should spend 40% or 38% or 42%-

Q245 Mr Newmark: What do you think? Is 50% good? 45%? 40%?

George Osborne: I am avoiding a precise target because, first, GDP can change. As a society and as a Government you have to make a decision about what you think is good value for money for the taxpayer-

Q246 Mr Newmark: What do you think the size of the state should really be?

George Osborne: It is about what should be collectively provided by the people of this country and the classic balance between spending and taxation. I would make a broader observation. When spending to GDP rises sharply above 40%, what has happened historically, and what happened again recently, is that the country gets itself into trouble. Even when left-wing Governments try to increase tax, they run into all sorts of problems and popular opposition to that. I do not set myself a precise target.

Q247 Mr Newmark: Although 40% sounds to me like it is sort of a reasonable target, from what you have said.

George Osborne: I make an observation that, when it gets far above 40%-when I became Chancellor, it was 48%, which is totally unsustainable.

Q248 Mr Newmark: Before we move to John Mann, who I think is going to talk about infrastructure-

George Osborne: Thank you for the prompt.

Mr Newmark: I am just warning you.

George Osborne: I will get my infrastructure.

Mr Newmark: I am going to talk about infrastructure briefly. Part of your infrastructure strategy is going to be led by Lord Deighton, who is your newly appointed Commercial Secretary. There is going to be a focus on big projects as well as science. I am curious about how you see Lord Deighton delivering this. I draw attention to the tension between longer-term projects such as HS2, which I think somebody else might well ask about, and the short-term shovel-ready projects, which will create jobs and growth more quickly.

George Osborne: I do not believe in infrastructure projects as job creation schemes, so I am not buying into the digging holes and filling them up again theory. That is a very inefficient use of state resources. There are much better and more sustainable ways to get people into employment. You should invest in infrastructure, and it does not matter how long it takes to build, but you should invest in infrastructure if it good value for money and brings a broader benefit to the economy and to society.

I am perhaps anticipating a line of questioning here but, as a Parliament, we make a judgment not just about what is of maximum economic benefit to the country, but about what is just for the country. If you look at economic returns on transport projects, they will basically tell you to spend everything in the south-east of England and around the M25. We reject that because, as a country, we do not want to see the only investment going into the south-east of England. We also want to improve the economic performance of the rest of the country, so a huge amount of investment is going around the country more broadly.

When we allocated capital in this Budget-this is something that I mentioned earlier in response to questioning from Andrew Tyrie-we did not do that on a Department-by-Department basis. We did not have individual negotiations with Cabinet Ministers on their departmental capital budgets. We took all the capital decisions to the centre. We got a panel of economists from different Departments in Whitehall to rank them in terms of their economic benefit. We then exercised political judgement about where we were prepared to alter that ranking in order to achieve a proper geographical spread and in order to ensure that certain Departments did not see a massive reduction in their capital budget. We then took that to a collective-to a Cabinet Committee, the Public Expenditure Committee-PEX. That was a rational and coherent way to approach the capital budget of the Government and to ensure that it closely follows what is in the ideal economic interests of the country, in as much as you can assess it.

Q249 Chair: You said earlier how valuable the signalling of your fiscal intentions had been in assisting the achievement of good outcomes. Why, then, are you so reticent about saying that you want to get back to what was, after all, the average of the last Labour Government, which was 40% of spending as a proportion of GDP?

George Osborne: I do not mean it to come across as reticent. The spending plans that I have set out for 2017 get the share of national income taken by the state down to just below 40%-39.5% or thereabouts. I think that is a good path to take and a good point to get to-or else we would not have set it forward.

In some quarters of both the right and the left, there are those who say that you should set a target, whether it is 35%, 40% or 45% of national income. Personally, and it is not that I mean any disrespect, that is not the approach that I think should be taken. I do not think you should precisely target a percentage of national income taken by the state. You should, however, be aware when you are straying into areas that are unsustainable.

Q250 Chair: Can I ask you to have another go at the question? The question was, you have come out firmly in favour of signalling and the benefits of signalling. Here is the most important signal of all in this field of policy, and you are not saying-you are not prepared to give a target.

George Osborne: This is a choice of language. I am clearly signalling that I think it would be good if the state was consuming around 39.5% of GDP, because that is where I am aiming to get to. What we do then is a matter for the Chancellor at the time, which I obviously hope will be myself. That is the question for then. In the way I have set up the fiscal mandate, the debt target and so on, I have not used state spending as a percentage of GDP as a target. I have set a clear signal about what I think is the appropriate size of the state, but I have not made a fetish of it-

Chair: Okay-you have answered the question.

Q251 John Mann: I have three questions. It would be helpful if, for the third question, Ms White was able to dig out the figure for the number of houses built to completion in the last financial year. I will leave her time to dig that out.

My first question is on infrastructure. You just said to Mr Newmark-and I think I quote you verbatim-that, when it comes to infrastructure, it does not matter how long it takes to build. As you did, I saw your staff busily tweeting-I am sure that they were tweeting it out. I would disagree. I think it does matter how long it takes to build.

When you became Chancellor, in my constituency there were a number of shovel-ready schemes waiting to go, such as the Langold Dyscarr refurbishment, the Serlby Park new school and the Elkesley bridge flyover. All of them were shovel ready, but none of them has begun. My first question is in relation to those specific projects in my constituency. When will the shovel be used?

George Osborne: First, I think that you misrepresent what I was saying. I am saying that, with infrastructure, if there are projects that can be done right now and that take a few months to do-a few days in the case of filling in potholes-if they make sense in terms of good value for money, we should do them, but we should not shy away from committing to much longer-term projects just because they are not going to be delivered this year or next year or in the lifetime of this Government. I think that previous Governments of all colours have been too short-termist in this approach, and things like High Speed 2 are multi-Parliament projects, as indeed is Crossrail, which is at least a two-Parliament project. If you take into account when it was actually conceived, it has been a multi-Parliament project. There is a mix of infrastructure programmes, some of which are going to take a long time to deliver, and some of which can be delivered very quickly.

On the specific projects in your constituency, the previous Government made a huge number of promises and it had a considerable period of time to do the things that you are talking about. I am happy to write to you about the road project that you mentioned. My understanding on Serlby Park primary school and secondary academy is that it is part of the priority school building programme. The feasibility work is starting imminently, and building work is to commence in 2014. It is due to be completed in 2016.

Q252 John Mann: That will be the first one, then, but they were all projects that your Government reconfirmed in your first Budget. We wait for a single penny of actual infrastructure spending by you in Bassetlaw.

Let me ask you about your own area. If your own accident and emergency department in your local hospital is proposed for closure in the next three years, will you fight that closure or will you support it as a contribution to meeting the NHS funding gap?

George Osborne: The decisions on hospital configuration-there is a statement today on one of them in south Manchester-should be driven by the clinical decisions of the NHS. We have now created a system in the NHS where there is an independent NHS board with a mandate set by the Government of the day. When it comes to individual hospital reconfigurations, that should be driven by the decisions of local clinical commissioning groups.

Any Member of Parliament will want to make representations on behalf of their constituents on what they think is the best thing for their constituents but, hopefully, local clinicians will have a pretty good idea of what is in the best interests of those constituents.

Q253 John Mann: My prediction is that, in the next three years, at least 30 accident and emergency departments will be closed, including some in the constituencies of Members of Parliament sitting around this table. Am I wrong in that prediction? You are the man who has the access to the figures and the finances.

George Osborne: There are a set of independent reviews under way, and I am not going to pre-empt those independent reviews, but it sounds to me like you are being a little bit alarmist.

Q254 John Mann: So you do not think that there will be as many as 30. Would you say that there could be as many as 15? Would that be an alarmist figure?

George Osborne: The key thing here is that these are independent decisions of clinical commissioning groups in an NHS that now operates, in terms of its clinical priorities, within a mandate set by the Government of the day. I am not going to pre-empt that.

Q255 John Mann: The term that is used is the "funding gap". That is the term used by the NHS chief executive. You are in charge of funding, and you have just given the three-year funding projection. I am simply asking. You say that I am alarmist in suggesting that 30 accident and emergency departments will close in the next 30 years. If I was to say 15, would that be alarmist?

George Osborne: I am not getting into a numbers game. Hospital reconfiguration decisions are decisions for local clinical commissioning groups. As I was explaining earlier, we have increased health funding in real terms. That was opposed by the party that you represent in Parliament-by the shadow Health Secretary. I have explained that the health service faces challenges because of an ageing population, but the way it is meeting those challenges is through an efficiency programme, which is well established. Indeed, elements of it started under the previous Government. I think that is the right approach.

Q256 John Mann: Do we have the figures?

Sharon White: We do not yet have final outturn figures from the last year but, roughly speaking, there have been about 84,000 houses built this Parliament, which is about 30,000 or so a year.

Q257 John Mann: Is that a forecast?

Sharon White: No, that is real construction. Plans for the future are for about 50,000 a year.

Mr Love: Welcome to your initiation.

Sharon White: Thank you very much.

Chair: John, do you have any more?

Q258 John Mann: Yes, I have a question on housing. The number of houses has fallen to a remarkably low level under your Chancellorship, particularly the number of one and two-bedroom new houses being built. My question is this. You were very happy to claim from the taxpayer for nearly 10 years for your empty bedrooms in your house yet, at the same time, you are willing to charge those who are the poorest in society for their empty bedrooms. I wonder if you would like to comment on the morality and ethics of this disparity?

George Osborne: As a Government, we have had to make difficult decisions on the welfare bill-I have had to make them as Chancellor. That includes the housing benefit bill, which was completely out of control under the previous Government, where some people were getting £100,000 a year in housing benefit. We have also taken difficult decisions on the spare room subsidy. It is up to those who oppose those decisions to say so publicly and to promise to reverse them, should they come into Government. I have not yet heard promises from you or your party that you will do that, from which I can only assume that you tacitly consent to what we are doing.

John Mann: So you are not prepared to answer my question.

George Osborne: The issue of morality is this: burdening our children with debts that we are not prepared, as a generation, to tackle is quite immoral.

Q259 Chair: References were made a moment ago to single pennies not being spent in Bassetlaw. I refer you to the reference to the A27 Chichester bypass, which I note in table A4. I am very pleased to see it, and it is better than nothing. I note that it is bottom of that list, and I hope that that is because we are on the south coast, rather than because we are going to be last in the queue. I am sure that you are not up to speed with something as detailed as that but, no doubt, you can give me reassurance that a single penny will be spent shortly.

George Osborne: I do not think that you should read too much into the order.

Chair: Good.

George Osborne: I should point out that the fact that you are the local MP did not influence the decision. If you were the Chair of the congressional committee on the budget, you would have various air bases, naval bases or army bases everywhere you wanted in your district, probably, but we do not go in for that pork-barrel politics in Britain thankfully.

Chair: I have noted that too.

Q260 Mr McFadden: The Chief Secretary, when he gave evidence to this Committee the other day, told us that the seven-day wait for benefits for people newly unemployed that you announced in your statement would apply to housing benefit for rent as well as to unemployment benefit. Is that correct?

George Osborne: It would apply to the housing benefit component or element of universal credit as universal credit comes in. The seven-day wait will come into effect next year for jobseeker’s allowance and employment and support allowance, and then, from 2015-16, with universal credit, to what is known as the passported benefits, which will include-it will not be called housing benefit any more-support under universal credit for housing.

Q261 Mr McFadden: This is a new element in the benefit system, is it not? On the jobseeker’s allowance side, there is already a three-day wait, which you are extending to seven days. Can you confirm that, with housing benefit, there is currently no waiting period?

George Osborne: That is my understanding, although some elements of housing benefit are passported through your eligibility for JSA. The universal credit did not have any waiting period built into it. We have built into it, for those who are assessed as capable of work-this is an important point-a seven-day waiting period.

Q262 Mr McFadden: Would this apply to all newly unemployed people? For example, would this apply to someone leaving the armed forces who did not have a job?

George Osborne: It will apply to newly unemployed people, with two important provisos. First, there is a linking period, a six-month period whereby you can come in and out of work in a six-month period. There is already a three-month linking period around conditionality for jobseeker’s allowance. There is going to be a six-month period with universal credit. In other words, we do not want to disincentivise someone from taking what might look like a temporary job that could turn into a permanent job because they fear that they will lose eligibility for benefits. That is already a feature of the benefits system, as you well know. That is going to be a six-month period under this, so that people will not have to wait for seven days if they take work for a month. If they become unemployed again, they will not have to wait seven days, but if they had been in work for more than six months, the waiting period will apply. Anyone being made redundant will have some kind of redundancy package as well and, hopefully, some notice of what is happening to them, so that they can make decisions about their future.

I do not know whether you wish to ask me about this, but the money we save from the seven-day wait is all being reinvested into our job centres to give more intensive help for job search and longer interviews for people who are looking for work, with weekly signing on for half of JSA claimants and a longer interview at three months. This is not money being snaffled by the Treasury or being used to reduce the deficit; this is money going into support for unemployed people to help them get into work.

Q263 Mr McFadden: That was a long answer, but the question was pretty simple. Anyone who is leaving the armed forces is likely to have been in them for more than six months. This change, this new element to the benefits system, of having a waiting period for housing benefit, will apply to people leaving the armed forces.

George Osborne: Anyone who has been in work who is assessed as capable of work will have to wait seven days before claiming their benefit. We want people to be very focused in that initial week, which is the week when there is a very high chance of people finding work-we want them to be focused on that. This is not extraordinary in the world. They have these waiting periods in Sweden. In New Zealand there is a two-week wait. Actually, if anything, Britain was slightly unusual in having just a three-day wait for JSA. We have changed that.

Mr McFadden, you are influential within your party. If you oppose this proposal, please say so.

Mr McFadden: I am going to take that as a yes.

George Osborne: What am I going to take your answer as? Do you oppose it, or do you support this proposal?

Chair: It is for Pat McFadden to ask the questions.

Mr McFadden: Any responsible Opposition, if they were going to make different choices, has to say where that money comes from, but we will come to that at another time.

George Osborne: We will certainly have to wait for it.

Q264 Mr McFadden: Do you know what this is like, Chancellor? Have you ever struggled to pay your rent?

George Osborne: I have had a fortunate upbringing. My father set up his own business and it was successful. I have worked since I left education.

I come back to this point. This money is not being used for anything other than trying to help people get into work, by using the best international evidence to provide support for people, longer job interviews, more help with their CVs and more help with their language if they do not have English. This is a set of changes based on the best international evidence of what works to help people get into work.

Q265 Mr McFadden: There has been some comment about your spending review more broadly-in economic terms, it did not change much and is pretty much a continuation of your current trajectory-that, in timing terms, it was not really necessary to have it now, and it could have waited another year or so, given that it applies to spending in 2015-16, and that the real purpose is to set a series of political traps and choices for the Opposition. Do you think that is a responsible way to conduct policy and to make important public policy decisions that affect people losing their jobs, in order to create political traps for your opponents?

George Osborne: First of all, I entirely reject that characterisation. The idea that it is straightforward to deliver a major spending consolidation like this is nonsense. It requires hard work within a Government. We have made a set of choices as a Government about what we want to support, whether it is the NHS, social care or science spending, which we have not discussed today. We have also made a set of choices around welfare, about making sure that the money this country spends is well spent on trying to get people into work.

I do not need to set traps for the Opposition, because they busily fall into those traps of their own accord.

Q266 Mr McFadden: I will ask you one final thing. More broadly, you have made great play of fairness. You have said those with the broadest shoulders should bear the biggest part of the burden. The ONS published figures yesterday showing that those on the lowest incomes are paying 36.6% of their income in tax, compared with 35.5% for the wealthiest. How does that fit with your fairness argument?

George Osborne: I saw the ONS data and the press coverage of it. The poorest fifth have paid a higher average tax rate than the richest since 2006, in other words the period when you were a Minister in the Government. We have taken decisions that have reduced income inequality. The remarkable thing about the ONS numbers yesterday was that they showed a reduction in inequality in our society. Overall, inequality is now at its lowest since 1986. The ONS highlight the increase in the personal allowance as one of the things that is assisting in that space.

Mr McFadden: They also highlighted the VAT increase.

George Osborne: In the end, when you are left with a very large deficit, you have to take decisions about what you are going to do to reduce it. It is up to anyone who disagrees with those decisions to promise to reverse them. We have taken decisions that have ensured that the richest fifth or indeed tenth-you can measure it either way-have borne the largest share of the burden in dealing with this consolidation. That has been borne out by what the Institute for Fiscal Studies has said. They were remarkable numbers yesterday. They show that income inequality in our country is reducing now. You will have to account for the record of the previous Government, but this Government has a proud record in this space.

Q267 Teresa Pearce: You have just mentioned income inequality reducing in the recent figures. Is it true that those figures do not take any account of the recent welfare changes?

George Osborne: The ONS numbers are only for the year 2011-12, so-

Teresa Pearce: So they do not take account of the-

George Osborne: Nor, indeed, of the very substantial increases in the personal allowance since 2011-12.

Q268 Teresa Pearce: On the seven-day waiting period, where people are going to lose a week’s rent, did you do an impact assessment on that particular measure?

George Osborne: We do an impact assessment in the sense that the whole thing is subject to an equality assessment, including-

Teresa Pearce: On that particular measure?

George Osborne: That measure was subject to an equality impact assessment, like all other measures.

Q269 Teresa Pearce: Did it show any evidence of increased rent arrears for housing associations and local authorities?

George Osborne: What the package as a whole demonstrates is that it will help people get into work, which is the best route out of poverty.

Q270 Teresa Pearce: So you have no analysis of the possibility of increased rent arrears. You have made no forecast of that.

George Osborne: We are confident that this measure will help people into work. People with debt problems can be best assisted by being in work.

Q271 Teresa Pearce: This is almost increased conditionality, in a way.

George Osborne: It is an element of conditionality.

Q272 Teresa Pearce: But the Welfare Reform Act has already brought in extra conditionality, increased sanctions and increased interventions. Is this measure being brought in because you think all those things did not work?

George Osborne: No, it is a further step in reforming welfare. I do not think we have reached an end point in reforming welfare. This will come to Parliament and there will be votes, certainly on secondary legislation. If people-such as yourself-do not support this measure, they will be free to vote against it.

Teresa Pearce: I am sure we will, but, until we have-

George Osborne: I am glad you have made that clear, because no one else in your party has.

Q273 Teresa Pearce: Until we have all the information, how can we know? Only this week it became clear that people will have their housing benefit cut and not just their jobseeker’s allowance. It is very difficult to make a decision as to whether you support something or not until we have all the detail.

I will move on. Chancellor, have you ever been to a food bank?

George Osborne: No, I have not visited a food bank.

Q274 Teresa Pearce: Do you know the main reason for people being referred to a food bank?

George Osborne: Food bank use has gone up-

Teresa Pearce: There are a number of reasons. Do you know the most common reason?

George Osborne: Food bank use went up tenfold under the previous Government. One of the things this Government did was to ask job centres to better advertise food banks, which make a very strong contribution to our community, because they are voluntary outlets.

Q275 Teresa Pearce: Clearly you do not know, so I will tell you. The main reason for referral to a food bank is benefit delay. If you are not going to get your benefit at all-not just a delay, but you just do not get it for a week, including your rent-this will increase people being referred to food banks, will it not?

George Osborne: I do not accept that link. We took a conscious decision to advertise the use of food banks at job centres. I know that this is a common feature of questions from Labour MPs. They seem to forget that use of food banks went up tenfold under the previous-

Q276 Teresa Pearce: Has it gone down since?

George Osborne: No. Use of the food banks has continued, partly because we are-

Teresa Pearce: Continued to rise.

George Osborne: Because we have actually-

Q277 Teresa Pearce: How many times a year can somebody go to a food bank?

Chair: Could you just answer the previous question? Why has it gone up? Then you can come on to the next one.

George Osborne: One of the reasons for the increased use of food banks is that people have been made aware of the food bank service through local job centres. I do not see that as a bad thing. It is a good thing that those services are advertised at job centres.

Q278 Teresa Pearce: It is a good thing that people can go to that place of last resort to feed themselves, I agree, but they can only go three times in a year. A family can be referred to a food bank only three times a year. If food bank usage is going up, it is not that people are using them more, it is that more people are using them.

George Osborne: More people might be using them because more people are aware of them, because job centres are making people aware of them.

Q279 Teresa Pearce: But more people have a need.

Can I ask you a couple more questions? In your statement on the seven-day wait, you said that £350 million a year will be saved, and all that money will enable us to afford extra support and help for people to get into work. Will that money be invested in Jobcentre Plus?

George Osborne: That will be invested in Jobcentre Plus and other support services for the unemployed, including, for example, we want to monitor people’s learning of the English language. That will not be provided by the job centre, but I can give you this assurance: this money will be reinvested in the support services for the unemployed, and for those, including the unemployed, who need assistance with their language.

Q280 Teresa Pearce: I have just a couple more questions. In response to John Mann, regarding the bedroom tax, you said that one of your reasons for bringing in the bedroom tax is that there were families on £100,000 a year of housing benefit. How many families?

George Osborne: It was a small number.

Q281 Teresa Pearce: How small?

George Osborne: I do not have the number.

Teresa Pearce: There were five.

George Osborne: £100,000 was the maximum, but there were lots of people on £70,000, £60,000, £50,000 and £40,000.

Teresa Pearce: Okay, but-

George Osborne: I can give you the numbers. I can tell you that the housing benefit bill was completely out of control.

Teresa Pearce: Two more questions.

George Osborne: It is perfectly open for people to oppose these measures. If you do not support the housing benefit cap, say so and campaign to oppose it, or to reverse it. That is not what the Labour party is saying.

Q282 Teresa Pearce: Chancellor, you were asked for your reasons why you thought that the bedroom tax was fair, and you gave that as a reason. However, in 2011, you brought the cap in. Nobody gets that amount in housing benefit now, so how can it be your rationale for something now?

George Osborne: That was bitterly contested by the Labour Opposition, by the way.

Q283 Teresa Pearce: I am asking you for your rationale.

George Osborne: Our rationale-

Teresa Pearce: You gave your reason as something that does not exist.

George Osborne: Our rationale is that it is perfectly reasonable, when you are trying to make savings across Government, to make savings to help improve-

Teresa Pearce: So your rationale is to save taxpayers money.

George Osborne: Our rationale for what we are doing is to make savings across Government, not just in Departments but in welfare bills; to make the welfare system fairer, including greater equality between the way that those in private rented accommodation are treated and those in social accommodation; and to ensure that we have, as a system, something that reflects a fair balance between the people who pay taxes towards the welfare system and the people who are recipients of welfare.

Q284 Teresa Pearce: I have two more questions. We are talking about good use of public money. What is the maximum that can be claimed as housing benefit for a one-bedroom flat in London?

George Osborne: I do not know.

Q285 Teresa Pearce: It is £250. What is the maximum that a Member of this House can claim for a one-bedroom flat in London?

George Osborne: I do not know the number.

Q286 Teresa Pearce: £350. Is that fair?

George Osborne: It is up to Parliament to make its decisions known-rather, it is now up to IPSA.

Q287 Teresa Pearce: So you do not have a view of whether that is a fair use of taxpayers’ money.

George Osborne: I want to reduce the cost of politics, but I also want to reduce the cost of welfare.

Q288 Mr Ruffley: On the help to buy, the mortgage guarantee scheme, when are we going to see the details of how it will operate?

George Osborne: Shortly-in the next couple of weeks.

Q289 Mr Ruffley: You said that this scheme will be, in your words, self-financing, because lenders will pay a fee to the Government, which will cover the administration costs, the expected losses and the cost of capital to provide the guarantee. Lots of outside commentators and this Committee have suggested that pricing the commercial risk might be difficult. Among other reasons, predicting repossessions is a very difficult science or art. How are you going to go about pricing that risk and ensuring that the fee is set at a level that protects the Exchequer?

George Osborne: We want it to be self-financing. At the same time, of course, we want it to be a scheme that works and provides help to those who cannot currently access higher loan-to-value mortgages because of the impairment of the mortgage market. In terms of assessing the repossession rate and repossession risk, this will be spelled out in greater detail in the next couple of weeks. We have done lots of modelling of what has happened to repossession rates over many years. One of the surprising things about the recent recession in 2008-09 was that repossession rates were not as high as people predicted. We have not just used that recession. We also looked at the 1990s recession, when rates were higher. We have taken a long-term view of repossession rates.

Q290 Mr Ruffley: Will you be able to provide this Committee with those detailed workings?

George Osborne: Yes.

Q291 Mr Ruffley: I am grateful. In our report on the 2013 Budget, we reflected what a lot of people in the City and outside commentators had said about the mortgage guarantee scheme. We said that existing constraints on the supply of new housing-largely as a result of planning laws-will mean that the primary effect of easier credit, at least in the short-to-medium-term may be to raise house prices. What estimate has the Treasury made of the impact of the guarantee scheme on house prices? Have you made an estimate?

George Osborne: The estimate is provided by the OBR. They provide a house-price estimate, and they provided this at the time of the Budget. The Budget included the help to buy announcement, so the OBR were well aware of that. They did not change their house-price inflation forecast as a result.

Q292 Mr Ruffley: Between now and 2015, what is that standing at?

George Osborne: I do not have that, but I can get the number. What they say is that house-price inflation is going to rise broadly in line with long-term average rate-of-earnings growth. I do not have it, but I could find the figure in this document.

It is not just the OBR that has come to this view. I notice that the ITEM Club has also taken the view that "the risk of higher prices does not appear to us to be a major concern". Interestingly, the response from the home builders-the crucial word is "builders"-is that they think that impaired mortgage finance has been the principal constriction on the supply of new building, and they think that, as a result, that will help enormously with the construction of new homes. Also, planning applications, because of the planning reforms that we have introduced, are up 10% in the last year.

Q293 Mr Ruffley: Do you think that there are wider economic benefits to the economy of rising house prices?

George Osborne: Like all things, you want moderation in house prices. As the OBR says, you want house prices to rise broadly in line with long-term average rate-of-earnings growth. You do not want house-price bubbles, nor do you want housing crashes.

Q294 Mr Ruffley: The IMF have suggested that there should be fiscal disincentives to holding on to land without developing it. What work has the Treasury done on that?

George Osborne: This has been a suggestion over many years, and it has been tried in various forms by various Governments. It is one of those things that looks good on paper, but it is quite hard to turn it into a practical charge, tax or levy that would work. I am happy to hear evidence about how it could be made to work in practice. I am not saying that it is impossible to make it work in practice, but I have not yet seen proposals that I think are practical.

Q295 Mr Ruffley: Has the Treasury actually studied any proposals recently?

George Osborne: Over time, over many years, the Treasury has always looked at various forms of land value tax and so on, but no proposal has ever been put before me.

Q296 Mr Ruffley: You do not find the ones that you have seen attractive.

George Osborne: I am sorry?

Mr Ruffley: You do not find them attractive, the ones that you have seen.

George Osborne: It is one of those things that sounds good in theory, but it might come unstuck in the detail. If I were ever to bring forward such a plan, I would have to be pretty assured it was going to work in practice.

Q297 Mr Ruffley: That is helpful. There are lots of different estimates of this, but the LGA suggests that there are about 400,000 planning consents for residential homes where development has not begun. Have you got any estimates as to how many of those are likely to come on stream as a result of the mortgage guarantee scheme? Have you made any estimates?

George Osborne: No, I do not have an estimate in front of me. The purpose of this is to repair an impaired mortgage market, which is clearly not functioning properly. If you look at the comparisons over the years, the number of first-time buyers is half what its average has been. The average deposit that the first-time buyer needs has gone up from 36% of income to 79% of income. That is not functioning. It is a block on aspiration. It is also a block on home building. However, I have not put forward an estimate for the number of new homes that will be built.

As we develop the details of the scheme-it is not operational until the end of this year-I am happy to look at those estimates. We made an estimate of the number of new homes that would receive the equity, help to buy-

Q298 Mr Ruffley: How many is that?

George Osborne: It is around 70,000. We have had a very high take-up of that.

Q299 Mr Ruffley: It is quite an important question, is it not, what the estimate of increased supply is? Unless there is increased supply, you could see house prices going up. If there is more demand and there is a fixed supply, or if supply is not increased significantly, you have a house-price inflation problem, have you not, Chancellor?

George Osborne: That is not what the OBR are forecasting. They are our independent forecasters, and they are aware of the scheme. Secondly, there is plenty of evidence from the home builders that one of the biggest impairments to supply has been mortgage finance.

Thirdly, with respect to the Committee, I do not think that the fears that the Committee has expressed are justified. This is a three-year scheme, which is targeting a specific problem that has arisen because of a financial crisis, and we are stepping in to repair that bit of the financial transmission mechanism. One thing that we have learned over the past five or six years is that more effort has been required than anyone anticipated to repair broken financial transmission mechanisms, whether that is the funding for lending scheme or the work that we have undertaken with the banks or indeed, now, help to buy.

Q300 Mr Ruffley: I can certainly see why this scheme will help first-time buyers, provided that supply is increased.

I want to ask one final question to Ms White, if I may. What estimates has the Treasury been looking at, or what estimates do you think the OBR have been looking at, Ms White, on the likely increase in supply, in the next three years, of residential housing?

Sharon White: As the Chancellor has already said, the OBR’s assumption that house-price inflation will not go beyond earnings growth is an implicit assumption on housing supply. Within the Treasury internally, our work in terms of the spending round has certainly looked at the impact of new capital on social housing supply, which we are expecting will roughly average about 50,000 a year over the next four years.

Mr Ruffley: On social housing?

Sharon White: On the social housing side.

Q301 Chair: Chancellor, you said that it was a three-year scheme, so this scheme falls away without the need for a reference to the FPC.

George Osborne: Yes.

Chair: I just want to be clear.

George Osborne: Yes-the scheme falls away, and there is a sort of double lock, in that the FPC will also be invited to give a comment if the Government of the day proposes to extend the scheme. There will be a clear red card available in the system.

Q302 Chair: You do not have concerns that the impression will develop of a one-way bet in the housing market, which is how bubbles get started in housing-when Government starts subsidising it. After all, it took the best part of a generation for politicians to get out of subsidising this market.

George Osborne: Our analysis of what went wrong in the British economy includes the fact that a financial crisis has impaired the financial transmission mechanisms. One of those things is mortgage finance. The funding for lending scheme has already helped-

Chair: You have said that already.

George Osborne: It has helped with the pricing of mortgages, but it has not helped with the availability of high loan-to-value mortgages for first-time buyers. I should make it clear that the mortgage guarantee element of help to buy applies not just to first-time buyers.

Q303 Chair: I was asking you about the impression leading to changes in behaviour among house buyers about a one-way bet in the housing market-not about whether there has been impairment in the transmission mechanisms.

George Osborne: People are very conscious, when they buy houses or flats, that the price can go down as well as up, and they have had a reminder of that over recent years, but it is a deeply held aspiration of many people in this country to own their own property.

Q304 Chair: You do not have any concern that we might be in the early stages of a repeat of the housing bubble and, in that sense, that we would be replacing the too-big-to-fail problem in banks with a too-big-to-fail problem in the housing market.

George Osborne: The best thing that I can do is to quote the director-general of the CBI, John Cridland, and I certainly agree with him. He said, "Clearly there are dangers in the long term of asset price bubbles, but we are a very long way away from that". I do not think that the situation at the moment looks like an asset price bubble.

Q305 Chair: So, at this stage, you are firmly committed to ending this scheme in three years.

George Osborne: It is a three-year scheme, and-

Chair: Was that a yes?

George Osborne: Yes. As I was saying, it is a three-year scheme, and it will come to an end after three years. If I or any other person doing this job were to extend the scheme or launch a second version of the scheme, the Financial Policy Committee will have a clear role in highlighting the dangers of that, if they perceive there to be dangers.

Q306 Chair: So, if you are still Chancellor, you are going to come before the House and announce that you want to continue it, and you will then refer it to the FPC. Is that going to be the sequence?

George Osborne: I suspect that it would have to be the other way round.

Q307 Chair: So you would go to the FPC informally.

George Osborne: I will set out in greater detail later this year how this will work. The way I envisage it working is that a Chancellor would say, "I am considering extending this scheme", and would write to the FPC about that and get the FPC’s view on whether or not that was sensible. A Chancellor who turned up in the House of Commons and said, "I want to extend this scheme, but I am going to ask the permission of the FPC", might find themselves coming unstuck a few weeks later if the FPC did not give their approval.

Q308 Stewart Hosie: Is this a housing policy, or is this a house construction policy?

George Osborne: It is both. It will help the supply of newly built homes, and the Home Builders Federation have welcomed it. It also helps with the situation we find ourselves in in this country, where many people in their 20s, 30s and 40s simply cannot afford the very high deposits that are required these days. I do not think that is a normal state of affairs in the mortgage market, and that is due to an impairment in the mortgage market.

Q309 Stewart Hosie: If it is both and has an element of construction policy, it does not matter if this assistance goes to someone buying a second or third home, does it?

George Osborne: We have made it clear that it is not for people who want to buy a second home. We have taken a number of decisions. We have capped the value of the house that you can buy. We have also taken a decision, which is set out in the infrastructure document that we published the day after the spending round, that both elements of the scheme are not available to those who have an interest in another property.

Q310 Stewart Hosie: That is slightly illogical if it is partly a construction policy-even if I agree with it.

I wish to ask specifically about the mortgage guarantee scheme. You have said that details are going to come forward but, in particular relation to this lock that the FPC have, the mechanism by which they could stop this scheme, when are we going to get the details-the proposals-and how will that be put out to consultation?

George Osborne: I was proposing to set out in detail, when we produce the detail of the fee, how the scheme is going to operate. One of the schemes is already operating-the shared equity scheme-but, on the mortgage scheme, we will set out the details of how it is going to operate, and we will then of course engage with the industry. At the same time, I would set out the process for the FPC.

In a sense, no Parliament can bind its successors. A future Chancellor, providing they can get a majority in Parliament, can make changes. What the FPC is able to do is to alert everyone to the fact that this is not something that they think is sensible. That would destroy the Chancellor’s initiative at the time, if they were trying to do this. It is a pretty powerful weapon that we are giving the FPC. It is really a self-constraint. This is a time-limited scheme. This is not something that we want to see as a permanent feature of our financial landscape.

Q311 Stewart Hosie: It is a powerful tool, but it is only a veto on the continuation of this after three years. Is that correct?

George Osborne: Yes. The point that I made to Mr Tyrie was this. This scheme is designed for three years. It comes to an end after three years. In the hypothetical situation in which a Chancellor said, "I’m going to extend the scheme", that is when the FPC’s warning lights, if they wanted to activate them, would come into effect. If the FPC said, "Actually, X, Y and Z have happened, and it is sensible that the Chancellor is extending this scheme", they would say that. However, I am certainly intending the scheme to come to an end after three years.

Q312 Stewart Hosie: Let us just stick to the three-year time limit at the moment. If a future Chancellor says, "I would like this to go on", and the FPC takes the decision, they would only be able to determine yes or no, presumably on the basis of fiscal stability and macro-prudential grounds-the stuff that is within the FPC’s remit-would they not?

George Osborne: Part of the FPC’s remit is to look at asset- price inflation and levels of debt. The remit is sufficiently broad that they could take into consideration any adverse impact of this.

Q313 Stewart Hosie: But the adverse impact would have to be economic at a macro-prudential or systemic level. Otherwise, you are giving the FPC more micro powers, which I do not think they expect to have.

George Osborne: The reason the lock is there is because people have been concerned that, if this scheme becomes a permanent feature of the mortgage market, and the Government is therefore a long-term player in the mortgage market, it could contribute years hence to the asset-price inflation that I have been asked about. Those are all macro-prudential concerns.

The scheme is absolutely intended to end after three years. This is only something I have put in to reassure those who feared that it would become a permanent feature of our financial system. I would not expect other interventions that we have made, and indeed that the previous Government made, in the financial system to become permanent features of the UK economy.

Q314 Stewart Hosie: I appreciate that. How much discussion have you had with the FPC about this?

George Osborne: I had lengthy discussions with Mervyn King, who is chair of the FPC. I do not meet the FPC as a group, but I discussed this at some considerable length before the Budget with Mervyn King.

Q315 Chair: And what did he say?

George Osborne: I do not want to speak for Mervyn King, who is more than capable of speaking for himself but, obviously-

Chair: Did he express warm support for the scheme?

George Osborne: Actually, he has been supportive, including in this respect, of things that we are doing, sometimes jointly with the Bank of England, sometimes off our own bat, to repair the broken financial transmission mechanism. If he had said, "I strongly object to this scheme", that would probably have killed it at birth.

Q316 Stewart Hosie: I have two further questions. If there was a systemic risk and if an asset bubble suddenly bubbles up much more quickly than the three-year horizon, and the FPC say to you, "You must stop this-it is dangerous", within the three-year timeframe, what do you do?

George Osborne: That is highly unlikely. I do not think that, in the current environment, a house-price bubble is going to emerge in 18 months or three years. You have to provide some kind of timeframe to mortgage companies and banks that will be investing in systems to deliver this scheme. That is why I judge three years to be the shortest period in which it would make sense for the industry to develop those systems and market the scheme while, at the same time, protecting us from a long-term detrimental impact, which I do not believe will happen.

Q317 Stewart Hosie: Let us go 18 months down the line, when the system is up and running, and there is still a scarcity of mortgages, particularly higher loan-to-value mortgages, high deposits are still being demanded and so on. When do you come back to Parliament and say, "I need to run this for four, five or six years"? How much advance notice do you give us of an extension of this scheme, should you deem it necessary?

George Osborne: That is a hypothetical question. Frankly, that decision, if it were ever to come to that, would be made in the next Parliament. I do not see why that decision would need to be made in this Parliament. The three years deliberately covers the next general election and allows a new Government, hopefully the Government of which I am part, to make that decision. I cannot really see the circumstances in which the decision to extend the scheme would arise in this Parliament.

Q318 Stewart Hosie: The run on Northern Rock started in the autumn of 2007. We are now into the summer of 2013. I do not think that anybody saw this going on quite this long. We may well have at least a decade and longer of austerity. Is it not right to plan for an extension to a scheme like this, assuming things might not pick up quickly?

George Osborne: It is not a decision that I envisage anyone having to take. It is designed as a temporary, three-year scheme. If there was a need to extend the scheme, I do not think that, technically, that would be very difficult to do. Politically, it would be extremely difficult to do if the FPC was recommending against it, which is why we are putting in the FPC lock. As I say, that is a decision that a Government would take early in the next Parliament, rather than in this Parliament.

Q319 Stewart Hosie: My final question is, in that circumstance, when a Government wants to, but the FPC say no, does the FPC veto trump, or would the Government overrule?

George Osborne: Parliament is sovereign in our country, but Parliament and Governments have a strong aversion to doing things that our independent Financial Policy Committee says are not a good thing.

Q320 Chair: The FPC is going to advise on the continuation of this scheme purely on the grounds of financial stability. There are also other aspects to this scheme beyond financial stability, including fiscal implications. Who is going to advise on those?

If I may broaden the question a little, financial stability can be defined narrowly or broadly for these purposes. Are you expecting them to define it broadly?

George Osborne: I would expect them to take a fairly broad view of the merits of an extension, should the Government put it to the FPC. That is a perfectly reasonable set of questions. The only thing that I would like to point out is that this is a three-year scheme, and I am not envisaging it being extended. It is a three-year scheme, and that is what the banks and the mortgage companies are going to plan for. That is what the systems are going to be designed for. The whole thing is designed as a three-year scheme, not as a scheme that is three years and could be extended to four, five or six years. That is not the intention.

Q321 Chair: You said earlier that, taking the estimates of others, you expected house prices to rise in line with earnings. If house prices rise faster than earnings, would you want to examine whether this scheme should be wound up early?

George Osborne: It is sensible to have a three-year scheme. I do not want to create uncertainty with the institutions that are being asked to deliver this that it might suddenly end early. It is difficult to see how this three-year scheme, given the current financial climate, would fulfil the fears that the Committee have expressed.

Q322 Chair: I was asking a narrower question about the relationship between earnings and house prices.

George Osborne: This is not something that you should examine every month. You should look at long-term trends and averages.

Q323 Chair: To be clear, can we take it from your answer that Mervyn King did not raise objections to this scheme?

George Osborne: Yes.

Q324 Chair: Can I return for a moment to the document that you put round right at the beginning, about the leaks? From what I can tell, having quickly tried to flick through it while we have been in session, this document seems to be about pre-briefing under embargo by officials.

George Osborne: Yes.

Q325 Chair: It does not relate in any way to what has probably been the main source of leaks, which is those authorised by Ministers, often through special advisers. Do you have any rules for those, which you are intending to put in place to reduce selective leaks by Ministers of Budget information?

George Osborne: The report was commissioned for a very specific purpose, which was that the contents, or much of the contents, of the Budget-the essential elements-appeared in the Evening Standard before I stood up, or as I stood up. That was obviously a situation that I found pretty unacceptable, and which I am sure Parliament found unacceptable. There has been a specific practice, which has gone on for some years, of pre-briefing certain media organisations, mainly the broadcasters but also the Evening Standard.

Chair: If I may stop you, Chancellor, you are repeating exactly what you said at the beginning of the meeting.

George Osborne: I am glad to hear it.

Q326 Chair: Unfortunately, it was a response to a question that I did not ask. I am asking a question about rules and procedures relating to pre-briefing by Ministers and by advisers on their behalf.

George Osborne: Special advisers are Treasury officials, and they are covered by this document, although the report makes it clear that this practice was not overseen by a special adviser. It is not in the interests of the Chancellor of the Exchequer or his Ministers in his Department-or her Ministers-to get up on Budget day and find that most of the good things have been in the papers beforehand. Occasionally, that happens to Chancellors. It has happened to me. However, that is unauthorised, and it is as frustrating to me as I am sure it is to Parliament.

Q327 Chair: Do you have rules and procedures laid down for Ministers and for your advisers that go beyond what is there for officials?

George Osborne: There is a ministerial code that covers-

Chair: We are talking about specifically with respect to the Budget-I am sorry to interrupt.

George Osborne: There is not-I have never seen a separate code specifically about the Budget.

Q328 Chair: So there are no rules. There are now going to be very clear rules for officials as a consequence, but none for-

George Osborne: I would certainly expect Ministers to abide by the rules that officials have to abide by.

Chair: We have begun and ended on a relatively detailed procedural point, caused by this release of a document just as we were about to go into public session, but most of today has been about a very interesting spending round. We are very grateful to you for having supplied the wealth of information that you have this morning, and for answering our questions. Thank you very much.

George Osborne: Thank you.

Prepared 15th July 2013