George Osborne – 2014 Speech on the Pound and Scottish Independence


Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, in Edinburgh on 13th February 2014.

In just over 7 months people in Scotland will decide whether or not to walk away from the United Kingdom.

The stakes couldn’t be higher or the choice clearer.

The certainty and security of being part of the UK or the uncertainty and risk of going it alone.

At the very heart of this choice is the pound in your pocket.


Because the currency we use is about so much more than notes and coins.

It’s about the value of our savings our power to purchase the everyday things we need and how we make the wheels of trade and commerce turn.

A stable currency is the bedrock of our economy

It underpins our jobs, our mortgages, our pensions our public services and our taxes,

And the opportunities for our children and our grandchildren

I don’t have a vote on 18th September.

But I know where I stand.

The pound is one of the oldest and most successful currencies in the world.

I want Scotland to keep the pound and the economic security that it brings.

And I hope passionately that the people of Scotland – who make such an important contribution to life on these islands – choose to stay within our family of nations here in the United Kingdom.

And why wouldn’t we keep the UK together?

The UK works. In good times, and also in bad.

Together we have faced the worst economic and financial crisis since the Great Depression.

Government debt sky-rocketed, hundreds of thousands of people lost their jobs, banks were bailed out, and as a nation we were made poorer.

But we avoided the economic collapse other nations around us in Europe faced. Because together, we had the strength to confront our problems and overcome them.

Reducing our deficit, cleaning up our financial system, and working through a long term economic plan for the country.

A long term plan that will allow people to feel secure again.

We’re seeing signs now that we have turned the corner.

The UK economy is growing faster than any other advanced economy in Europe.

And within the UK, Scotland is growing faster than the rest.

We’ve had 6 consecutive quarters of Scottish growth.

Growth not just in services but in manufacturing and construction too.

Over a hundred thousand new jobs have been created in Scotland in the last four years.

Sixty five thousand fewer people unemployed compared to 2010

But the job is not yet done.

These hard-fought gains could be easily lost.

And nothing could be more damaging to economic security here in Scotland than dividing our United Kingdom.

That’s not the outcome I want.

I ask you to look ahead to the longer-term challenges we face as a country competing for jobs and business in the global race…

– providing good careers for our children

– supporting an ageing population

– managing with lower North Sea oil revenues

And consider: to which of these great challenges is dividing up the United Kingdom the right solution?

Today Scotland is one of the most economically successful parts of the UK.

– with growth per head the same as the smaller independent European states the Scottish government would like Scotland to join…

– but with far more stability and less volatility than them, thanks to being part of the wider UK.

So for me the positive answer is to work as one and to tackle these challenges together.

Nowhere are the risks to Scotland’s economic security more apparent than in the debate about currency.

Last year the Chief Secretary and I came to Glasgow to share the rigorous and objective analysis the Treasury had done on the question of Scotland’s future currency.

I said it was unlikely that an independent Scotland would be able to share the pound and share the Bank of England.

Today I am here in Edinburgh to consider with you further rigorous and objective analysis by the Treasury which builds on that work – and draws on what we have learnt in the last year.

Alongside this analysis I am also taking the exceptional step of publishing the internal advice I have received from the Permanent Secretary to the Treasury, Sir Nicholas Macpherson.

Since I spoke last April, the Scottish government’s proposal for sharing the UK pound has been questioned by one independent economist after another

Including by DeAnne Julius, a distinguished former member of the Monetary Policy Committee, and John Kay, one of Alex Salmond’s former economic advisers

Many prominent supporters of the Yes campaign have raised doubts about the nationalist’s plan,

From Jim Sillars, the former deputy-leader of the Scottish National Party, to Dennis Canavan, chairman of Yes Scotland, and Patrick Harvie, the leader of the Scottish Green Party.

Businesses and the financial services sector have started to speak out.

Last week the President of the UK Chamber of Shipping and the Chief Executives of Scottish Financial Enterprise, of Simmons&Co, and of Sainsburys all expressed their concerns.

The American Chief Executive of one of the biggest investors in Scotland, BP, said that the huge unanswered questions over the currency and economic policies of an independent Scotland could put big investments in this country at risk.

And now my two predecessors as Chancellor, the current Chief Secretary, Shadow Chancellor, Scottish Secretary and First Minister of Wales – all from different political parties to me – have raised the same questions I raised almost a year ago.

But perhaps no contribution has been more decisive and unquestionably independent than that offered by the Governor of the Bank of England when he spoke about the currency union, here in this city, two weeks ago.

Dr Mark Carney is a Canadian citizen who speaks for no side in this debate, but instead offered the people of Scotland, and the people of the whole UK, his technical and independent advice.

Today I want to pick up where the Governor’s speech left off.

So it’s worth recalling exactly what he said.

He said that the existing UK has proved “durable and efficient”.

He said that we “would need to consider carefully what the economics of currency unions suggest are the necessary foundations for a durable union, particularly given the clear risks if these foundations are not in place.”

And he warned us of the risks that could arise if an independent Scotland tried to stay in a currency union with the UK, without both nations ceding significant sovereignty not only over banking but also over spending and tax decisions.

And in the face of these questions posed by the Bank Governor, what have the Scottish government said?

They have just simply asserted it’s a common sense proposition.


Common-sense is when you’ve got something that works really well already

– you don’t throw it away

– you don’t replace it with something that certainly won’t work as well

– and you certainly don’t embark on a high-risk experiment that may not work at all.

And have the Scottish government engaged in the technical arguments the Governor made? No.

Have they attempted to offer answers to the questions he posed? No.

We’ve had nothing more than confusion, wild assertion and empty threats.

Let me deal with this so-called response, before we go into the real economic issues.

First of all, the Scottish government say “it’s as much Scotland’s pound as the rest of the UK’s”.

They are like an angry party to a messy divorce.

But the pound isn’t an asset to be divided up between the two countries after break-up as if it were a CD collection.

The value of the pound doesn’t lie in the paper and ink that’s used to print it.

The value of the pound lies in the entire monetary system underpinning it.

A system that includes the Bank of England and the tens of millions of UK taxpayers who stand behind that financial system

It is a system that is supported by political union, banking union and automatic transfers of public spending across the United Kingdom.

A vote to leave the UK is also a vote to leave these unions and those transfers and those monetary arrangements.

That’s part of the choice that people in Scotland are being asked to make.

There’s no legal reason why the rest of the UK would need to share its currency with Scotland, as the Treasury’s publication today clearly shows.

So when the nationalists say “the pound is as much ours as the rest of the UKs” are they really saying that an independent Scotland could insist that taxpayers in a nation it has just voted to leave…

– had to continue to back the currency of this new foreign country

– had to consider the circumstances of this foreign country when setting their interest rates

– stand behind the banks of this foreign country as a lender of last resort

– or stand behind its foreign government when it needed public spending support.

That is patently absurd.

If Scotland walks away from the UK, it walks away from the UK pound.

The Scottish government also asserted after Dr Carney’s speech that sharing the pound would make sense to the rest of the UK because of the huge volume of trade the rest of the UK does with Scotland.

I’m the first to say that our deeply integrated businesses and their suppliers are compelling reasons for keeping the UK together.

70 per cent of Scottish trade is with the rest of the UK. That is a massive proportion.

And trade with Scotland is important to the rest of the UK – but at only 10 per cent of the total trade, it is a much smaller proportion.

These trade figures don’t make the unanswerable case for a shared currency that the Scottish government assume.

After all, 40 per cent of the UK’s exports go to the euro area, but we chose not to join the euro.

And almost 20 per cent of our exports go to the United States – are the Scottish government suggesting that we should adopt the dollar?

When his economic arguments fall apart, the First Minister resorts to reckless threats.

He says “an independent Scotland will refuse to accept its fair share of national debt if the UK refuses to share the pound”.

That’s like saying: because my neighbour won’t agree to my unreasonable demands, I’m going to burn my own house down in protest.

Currently Scotland benefits from the whole UK’s credibility in the gilt markets.

– credibility that is hard won by tough policy decisions and responsible actions – like our recent statement from the Treasury that we would honour all UK gilts in the event of independence.

The fact our commitment was immediately accepted by investors here and around the world was a sign of that credibility and strength.

And it’s that strength and credibility that delivers every day low mortgages for Scottish families and low rates for Scottish businesses borrowing to expand.

Independent experts already estimate that even a new Scottish state which had accepted its fair share of UK debt would have to pay an ‘independence premium’ to borrow from the markets.

The premium has been put at between 72 and 165 basis points above UK rates.

For the average mortgage-payer in Scotland, that could be an extra £1,700 a year in mortgage payments.

But the premium would be as nothing compared to the millstone the Scottish people would have to carry if an independent Scotland failed to honour its fair share of national debt.

In that scenario international lenders would look at Scotland and see a fledgling country whose only credit history was one gigantic default.

And they would demand a punitively high interest rate as a result.

That would be crippling for every Scottish household with a mortgage or personal loan, for every Scottish business with credit, for the public finances and therefore for public services and for taxpayers, and for the whole economy.

If an independent Scotland reneged on its debts it would become an outcast among the family of responsible economic nations.

So it is a reckless threat.

And Alex Salmond knows it.

And the fact that he issues this reckless threat shows how all his other arguments have been exposed by the serious analytical work of the Treasury, the wider economic community, and now the independent Governor of our central bank.

So let me return to the real economic issues that the Governor raised.

Mark Carney ended his speech last month by saying this.

He said “a durable, successful currency union requires some ceding of national sovereignty.”

He concluded that “Decisions that cede sovereignty and limit autonomy are rightly choices for elected governments and involve considerations beyond mere economics. For those considerations, others are better placed to comment.”

And that’s where I want to pick up today.

I want to give you my assessment of the merits of a currency union, as the elected politician currently responsible for the overall health and stewardship of the UK economy.

That assessment is based on the new Treasury analysis which I publish today. Prepared by civil servants, it sets out in detail the problems that we would face if we attempted to create a currency union between an independent Scotland and continuing UK.

The Treasury analysis highlights four major requirements for a currency union between an independent Scotland and the rest of the UK.

The first is the requirement for a banking union.

As the Governor said, without a banking union “the viability of the [currency] union itself [is] undermined.”

If we have learnt one thing from the euro crisis, it is that a currency union is unstable without a shared financial supervisor, common resolution mechanisms, a lender of last resort, and credible deposit guarantee schemes.

It would be important for Scotland, where financial sector assets are worth more than twelve times Scottish GDP, to be able to call on the deeper pockets of the neighbouring UK government in a crisis.

Otherwise it is extremely difficult to see how Scotland could remain a home to large financial institutions like RBS.

RBS would have undergone a disorderly collapse without the support of the whole UK in 2008 – and even for a country of our size, it was a huge endeavour.

An independent Scotland would have been unable to bail it out.

Without a shared banking union, the Scottish Government would also struggle to create a depositor guarantee scheme which was as credible as the one we have now in the UK.

That in turn would make an independent Scottish state a less attractive place to be based as a deposit taker like a bank.

The consequence would be a loss of business and a loss of jobs.

So a banking union is important for an independent Scotland. But it would also be an essential demand for the rest of the UK if we were to contemplate a currency union.

After all, the rest of the UK would be tying its currency to a country with a big financial sector, capable of inflicting huge damage on it – and it would demand supervisory control as a result.

Just as Germany has now done, through the ECB, in the aftermath of the Spanish and Irish banking problems.

But how could I propose such a banking union to the UK public after an independence vote?

We have fought hard to keep Britain out of a banking union in Europe – a union that includes Ireland, whose banking system is also integrated with ours.

So why would the rest of the UK now join a banking union with Scotland?

For at heart this banking union would involve putting UK taxpayers on the line for banks in a foreign country.

Asking them to underwrite a Scottish Government guarantee on deposits held in Scottish Banks.

Asking to put their money at risk whenever Scottish authorities extend emergency support to Scottish banks.

And with little prospect of any benefit flowing in the other direction – for Scotland could only make a limited contribution to supporting a big English bank.

It is very difficult to see how after a ‘Yes’ vote, any UK politician could propose such an asymmetrical arrangement.

What would be in it for the rest of the United Kingdom? Nothing but exposure, again, to the risk of a failing bank – this time not even in our own country, but in a foreign one.

The second requirement for a successful currency union is for much greater fiscal risk sharing.

As the Governor said, that fiscal risk sharing is needed not just to underpin a banking union – in other words, to pay out in the last resort when banks fail – but also to smooth over economic shocks.

In our case, the continuing UK would be almost ten times the size of the Scottish economy. So this would be a totally one-sided deal where UK taxpayers would have to transfer money to an independent Scotland in times of economic stress, with limited prospect of any transfers the other way.

We got Britain out of the eurozone bailouts. Now we’d be getting into an arrangement that was just the same.

The citizens of the rest of the UK could not sign up to such a deal. And frankly, even if we could, I do not think Scotland would want to either.

For the logic of a currency union would mean that Scotland would have to give up sovereignty over spending and tax decisions.

Look at the direction the euro is heading in – supervision and consent to member budgets, deficit controls, debt reduction rules.

In a crucial sense, Scotland would have less independence than it has now – because spending and tax decisions would still have to be agreed by the Parliament in Westminster, but now there would be no longer any Scottish MPs in that Parliament or Scottish members of the Cabinet.

And the citizens of the rest of the UK would have to concede at least some sovereignty and supervision of our own Budget to a foreign country – something we’ve fiercely resisted up to now and would in the future.

The Scottish government claims to accept this in principle.

They talk about being prepared to agree a fiscal pact.

But at the same time, Mr Salmond said to the Financial Times only a few days ago that the pact: “doesn’t need to cover rates of taxation, I don’t think there’s any need for that”.

And John Swinney has said that “A shared currency will mean an independent Scotland having control of tax policy, employment policy, social security policy, oil and gas revenues, immigration policy and a range of other levers to suit our own circumstances”

That is a million miles away from the fiscal risk-sharing the Governor has said is the foundation of an effective currency union and the Eurozone is working to.

It shows that a greater fiscal union is not acceptable to the Scottish government – and would not be acceptable to the rest of the UK.

The third requirement for a currency union is, of course, the same monetary and exchange rate policy.

Within a currency union, an independent Scotland would not have exchange rate flexibility or the ability to set interest rates specifically to suit conditions in Scotland.

Scotland’s economic conditions are taken into account today by the Monetary Policy Committee. On top of that we have full fiscal risk sharing across the UK.

Without that fiscal risk sharing, the full force of any adjustment to an economic shock would have to be borne in full by Scottish taxpayers.

Consider for example the impact of a substantial fall in the oil price – something we’ve seen several times over the last thirty years.

As part of the UK, Scotland is insulated from the impacts that this would have on tax revenues.

In the last Autumn Statement for example the Office for Budget Responsibility cut its forecast for North Sea revenues by almost £4bn over the next three years.

But instead of needing to cut spending, the Scottish Government saw its budget rise by more than £300m.

Under independence, if the Scottish Government did not have the flexibility to cut interest rates – and lacked the fiscal risk sharing it currently has – it would have to respond to a fall in oil revenues by cutting public spending dramatically or raising taxes hugely in response.

The Treasury analysis published today shows that for each 20 dollar fall in the oil price, an independent Scotland would lose 11,000 jobs, whereas if it remained part of the UK it wouldn’t lose any.

To put this in context, between 2008 and 2009 the global oil price fell by over 60 dollars.

So Scotland would be forced to take more drastic fiscal measures in times of crisis, and the pressure would quickly grow to leave the pound so that Scotland could regain control of its interest rates and its exchange rates.

And it would be in the UK’s interests to have separate interest rates as well.

Just consider a scenario where the value of oil increased.

The Scottish government have asserted that the rest of the UK would want to make a currency union work, because Scottish exports – especially oil – make a substantial contribution to the UK’s balance of payments.

As it happens independent experts think the effect would be broadly neutral, but let’s put that aside for now.

According to the Scottish government’s logic, if the value of oil exports went up, contributing more to the UK balance of payments, then we would have an even greater interest in making a currency union work.

But the opposite is the case.

Because if Scottish oil did make such a substantial contribution to the UK’s balance of payments, then it would be artificially increasing the value of the pound – and that would be to the detriment of exporters in other parts of the UK.

That’s exactly what many members of the euro have discovered over recent years.

That’s an argument against currency union, not for it.

This leads me to the fourth and final requirement, which is about the permanence of any currency union.

If currency unions are to succeed then the markets must believe they are built to last.

Look at the massive damage to confidence and stability in 2012 when there was doubt about whether Greece would remain in the euro – despite the protestations of everlasting currency union by all involved.

My commitment as UK Chancellor of the Exchequer – and the commitment of the UK government – to Scotland and to Scotland’s place within the UK is absolute.

In the event of independence the Scottish government’s commitment to the continuing UK would be the opposite of absolute.

As both its own Fiscal Commission and White Paper make plain, the Scottish government’s vision is of a currency union of convenience, not conviction.

Their White Paper said, “It would of course, be open to the people of Scotland to choose a different arrangement in the future.”

The Fiscal Commission said that the currency could evolve “should the people of Scotland wish for further reform or should economic conditions change.”

They go out of their way to tell us that a currency union would be a temporary arrangement that can be ditched as Scotland’s circumstances change.

This makes it unsustainable.

Imagine what would have happened to Greece two years ago if they had said they would consider going back to the Drachma.

It would have happened the next day.

The markets would try to break a Sterling currency union – knowing that, unlike with Greece, the Scottish Government were actively stressing how temporary the arrangements were.

Just look at what happened to the last two nations who tried to form a currency union following separation – Slovakia and the Czech Republic.

Their union fell apart after only thirty three days as capital flowed from one to the other in pursuit of the safe haven.

We would face the same risk if Scotland tried to keep the pound.

Signing-up for arrangements that are inherently unstable would risk over time breeding huge resentment on both sides of the border.

We want to bring people closer together, not drive them further apart.

So to what conclusion does this analysis of the requirements of a workable, successful currency union lead us?

We have seen how it would be impossible to construct an acceptable banking union, or fiscal union…

We have seen that we would be ill-served by the monetary policy arrangements, and that the permanence of the currency union would be in serious question from the outset.

On this basis, the official advice I have received from civil servants in the Treasury is that they would not recommend a currency union to the Government of the continuing UK.

Listening to that advice, looking at the analysis myself

It is clear to me:

I could not as Chancellor recommend that we could share the pound with an independent Scotland.

The evidence shows it wouldn’t work. It would cost jobs and cost money. It wouldn’t provide economic security for Scotland or for the rest of the UK.

I don’t think any other Chancellor of the Exchequer would come to a different view.

The Scottish government says that if Scotland becomes independent there will be a currency union and Scotland will share the pound.

People need to know – that is not going to happen.

Because sharing the pound is not in the interests of either the people of Scotland or the rest of the UK.

The people of the rest of the UK wouldn’t accept it and Parliament wouldn’t pass it.

This issue more than any other exposes the gaping chasm at the core of the plans to separate Scotland from the rest of the UK.

People in Scotland are being asked to accept two diametrically opposite things at the same time.

That with independence everything in Scotland will change and at the same time nothing will change.

It simply doesn’t add up for the Scottish government.

If Scotland walks away from the UK, it walks away from the Pound.

There is an alternative, confident, future for Scotland.

A future in which the nations of the UK work together to provide economic security for our citizens.

A future where strengthened devolved government empowers people from every corner of our land to play their part.

A future of jobs and prosperity and peace of mind.

It’s a strong Scotland within a United Kingdom.

That is a future worth fighting for.

George Osborne – 2014 Speech on Open Europe


Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, on 15th January 2014.

Thank you for inviting me here today and congratulations to the Fresh Start Group and Open Europe for pulling together this excellent conference of European reformers.

Andrea and the Fresh Start team are providing just the kind of practical and challenging thinking we need as we work towards a reformed Europe.

Likewise, Mats and the Open Europe team are influencing the debate not just in the UK but right across Europe.

I know that your new partner office in Berlin is already having an important impact on the debate there.

And I would like to particularly pay tribute today to Rodney Leach.

Rodney’s tireless campaigning helped keep Britain out of the euro.

I’m proud to have been on the board of that ‘no’ campaign.

It is hard to imagine now, but at the time joining the euro seemed a real possibility.  I shudder to think what would have happened during the last decade if we had joined the euro.

We’d have had an even more extreme boom-bust cycle and a downturn even deeper than the Great Recession we experienced under the last government.

And in the aftermath, as we tried to pick up the pieces, we would have been hobbled, without a floating exchange rate or an independent monetary policy.

That wouldn’t have been in the interests of this country – and I don’t think it would have been in the interests of the rest of Europe either.

The issues that were raised during the debate about joining the euro endure now: arguments about the necessity of economic reform, concern that currency union would lead to further fiscal union, and doubts about the yawning democratic deficit.

At the time William Hague, who I was working for, predicted the euro could become a “burning building with no exits”.

More than a decade later, these issues have not gone away. Far from it. They have been thrown into sharp focus by the economic crisis in Europe and in the eurozone.

That’s why a year ago the Prime Minister gave his landmark speech on the need for a reformed Europe, fit for the global race – and a reformed relationship between Britain and the European Union.

It’s why he committed our country to a referendum on that renegotiation.

In Britain it has always felt like there have been two debates about the EU.  One debate is about sovereignty, democracy and accountability.

A second debate has been about the economics.

But there aren’t two debates. This is one debate.

Getting the economics right is not sufficient to persuade people of the merits of the EU.  Other constitutional change is needed. But getting the economics right is absolutely necessary.

It was after all sold to our country as a European Economic Community.

Without economic success the EU will not be regarded as democratically legitimate.  You can see that in the way that support for the EU has fallen sharply right across the continent during the economic crisis.

So today I want to develop the conversation about some of the economic reforms that we want to secure as part of the forthcoming negotiations. We need two things.

First we need economic reform that enables the EU to create jobs and economic security, and compete in the global race – something it is not doing well at the moment.

And second as the Eurozone undertakes the integration required to make the euro work, we need constitutional reforms to make sure that those countries which are not in the euro can remain in the EU, confident that their interests and rights will be protected.

Let me begin with jobs and economic security.

We knew there was a competitiveness problem in Europe before the crisis. But the crisis has dramatically accelerated the shifts in the tectonic economic plates that see power moving eastwards and southwards on our planet.

Over the last six years, the European economy has stalled.

In the same period, the Indian economy has grown by more than a third.

The Chinese economy by nearly 70 per cent.

Over the next 15 years Europe’s share of global output is forecast to halve.

Make no mistake, our continent is falling behind.

Look at innovation, where Europe’s share of world patent applications nearly halved in the last decade.

Look at unemployment, where a quarter of young people looking for work can’t find it.

Look at welfare.

As Angela Merkel has pointed out, Europe accounts for just over 7 per cent of the world’s population, 25 per cent of its economy, and 50 per cent of global social welfare spending.

We can’t go on like this.

This is the continent that for centuries led the world in innovation and scientific discovery, enterprise and work ethic. Are we to say that the Europe that gave us Galileo, Darwin and Marie Curie, the industrial revolution, democracy and the free economy, has given up on the future because it is all too difficult?

As a father of two young children, I don’t want to turn to them as we see the latest Chinese scientific breakthrough or Indian innovation and say: “that used to be us. That used to be Europe.”

The hard truth is that if we want to maintain our way of life in Europe we’ve got to get more competitive. And that’s going to require some tough steps: living within our means, making our labour markets competitive, expanding free trade.

Most of the action needed will have to be taken at a domestic level.

I’m not here to lecture other member states about that.

Not least because the UK has had to take more action than most.

When I entered office three and a half years ago, we had just suffered one of the sharpest falls in national output, and faced the highest budget deficit of any major western economy – higher than Spain or Portugal, and much higher than Italy or France.

Indeed, our budget deficit has fallen a lot but is still one of the highest in Europe.

That’s why we’re working through a long term economic plan that makes the tough choices necessary for our long term prosperity.

Reducing borrowing.

Cutting taxes.

Creating jobs by supporting business and investing in infrastructure.

Capping welfare and controlling immigration.

Delivering better skills and schools.

And I know we’re not alone.

Many of our neighbours have also taken tough decisions in recent years. We in Britain should praise them for it, not dismiss them.

Germany led the way a decade ago with its employment and welfare reforms.

Unemployment has halved since, and remains half the European average.

Spain is undertaking radical labour market reforms that are now yielding real results.

Sweden has reformed its education and welfare systems.

It’s right that most of these reforms have to be taken at the national level.

We all have to put our own house in order. And there’s still a huge amount more we all have to do, including here in Britain.

But Europe’s competitiveness also requires action at the European level.

Now there are those who throw their hands up and say “we can’t reform Europe, it can’t be done, it’s all too hard”, I say “we’ve already proved you wrong”.

Take the EU Budget.

Last year, the Prime Minister negotiated the first ever real terms cut to the EU budget.

For the first time, EU spending is not going up but coming down.

And far from being a lone voice, we were working alongside like-minded countries including Germany, Sweden, the Netherlands and Denmark.

Take bureaucracy.

The UK, drawing on the findings of our business taskforce, has proposed a programme for cutting red tape in Europe that has secured the support of 13 other Member States and the European Parliament.

Take free trade.

Britain was one of the strongest promoters of the recent trade deals with Canada, Singapore and Korea. The Canada deal alone will be worth £1.3 billion pounds to Britain.

Reducing the budget, tackling red tape, some free trade agreements – this is a good beginning, but it’s not nearly enough.

We need to be much, much bolder.

We should set ourselves the urgent task of completing the transatlantic trade and investment partnership – the EU-US Free Trade agreement.

This would be the world’s biggest ever trade deal – together our economies would account for half of global output.

The Commission estimate it would boost the European economy by 120 billion euros a year – that’s over 500 euros for every family in the EU. It would bring £10 billion pounds a year to the UK alone.

Some in the European Parliament talk about stalling this Trans-Atlantic Partnership to pursue other agendas.

But when a quarter of young people looking for work in Europe are unemployed, this would be a complete betrayal.

We need to create jobs, increase trade, support business growth – we’ve got the European tools to help with the job, let’s get on and use them.

The same applies with the Single Market.

We need to stop talking about completing the Single Market in services, energy and digital, and get on with it.

I remember sitting around the ECOFIN table nearly four years ago and listening to Mario Monti present his “Report on the Future of the Single Market”

It offered a detailed plan for boosting the Single Market. On the services sector alone, it estimated we could boost GDP by up to 1½ per cent.

And it was agreed by the EU.

But four years on, what has come of it? Precious little.

We need to come up with innovative ideas to overcome the vested interests that are holding back progress in this area.

Personally I’m attracted to Open Europe’s thoughts on using enhanced cooperation to allow a smaller group of Member States to move forward toward trade liberalisation in areas like services among themselves if not all EU member states can agree.

If enhanced cooperation can be used by others to create expensive job destroying ideas like a Financial Transaction Tax, why don’t we think about using it for job creating measures that others oppose?

If we in the EU are going to solve our competitiveness problem we need to think big.

If we are going to create jobs and provide economic security, we need major reform

So the crisis has accelerated and sharpened the economic challenges that already faced the whole of Europe.

But the crisis has also brutally exposed the problems that were always apparent to many of us in this room in trying to run a currency union without a proper fiscal, financial and political union to back it up.

The European Council President, Herman Van Rompuy acknowledged this a few years ago. He said: “this tension has been there since the single currency was created.

However, the general public was not really made aware of it”.

Well, it wasn’t for lack of trying in those debates about the euro 15 years ago.

And everyone’s aware of the tension now.

Three years ago I predicted that that the economic crisis in the eurozone would force the “remorseless logic” of monetary union towards greater fiscal and economic integration, including a banking union.

Even as late as 2011 that was regarded as a controversial prediction.

I also said that this loss of national control, and the loss of economic flexibility, was precisely why I didn’t want to see the UK in the euro.

But since then the Eurozone has started to work through that remorseless logic. Creating the Banking Union, the European Stability Mechanism to bail out Eurozone countries and now the proposed Single Resolution Mechanism to bail out Eurozone banks.

And the UK has not blocked them.

We could have blocked crucial parts of the Banking Union, but we didn’t.

That’s because we want the euro to work. Work for those in Europe who use it, and work for us, because an unstable euro on our doorstep has already done great damage to jobs and growth in Britain.

But we have been clear from the outset that in return for this integration, non euro members like the UK would need safeguards to protect their rights and interests.

Some on the continent like to assume this is just the UK pursuing its own self-interest, at the expense of the collective good.

But it’s the opposite.

If we cannot protect the collective interests of non-eurozone member states then they will have to choose between joining the euro, which the UK will not do, or leaving the EU.

So we have fought to safeguard the rights of non-euro members. But it has not been easy.

Let me spell out just some of the issues I’ve seen first-hand sitting at the ECOFIN table in financial services, where it has been most difficult.

Deeper integration in the Eurozone has thrown up four sorts of challenges, and we have had to argue our case and work hard to build alliances to deal with all four of them.  But again, for those who say reform isn’t possible – we’ve been more successful in starting to deal with them than some people expected.

First there is a danger that the euro members could start to use their collective voting weight in the EU to effectively write the rules for the whole EU by Qualified Majority Vote.

Under the Lisbon Treaty, from 2016, the Eurogroup on its own will have sufficient votes to pass any financial services legislation for the whole of the EU.

That’s a problem because it could leave us in a position where euro members – including ones with little or no financial services industry – can caucus together to impose financial services legislation on the UK –the world’s leading financial centre.

And we’ve already started to see the Eurogroup discussing EU directives privately before involving other member states – like they did over the Bank Recovery and Resolution Directive last June.

It means there’s a very real risk that badly thought through legislation will be imposed on the UK.

And as the Chancellor of a country where financial services represent a tenth of the economy, and employ more than a million people, I could not let that happen.

Damaging Europe’s great global financial centre would also, incidentally, be very bad for the whole of Europe too.

The City of London is not, as some of our continental friends kid themselves, in competition with Paris and Frankfurt. It is in competition with places like Hong Kong, Singapore, and New York.

That’s why it was important that we secured some important institutional changes to protect the UK and ensure we have safe, competitive financial services.

It was a long hard fight, but we negotiated in the ECOFIN and European Council a whole new voting system – the so called “double majority” system – which will apply in the European Banking Authority.

Double majority voting means that legal proposals now require a majority of both eurozone and non-eurozone countries to pass.

People said we would not be able to secure a new voting system, that it was impossible.

But we did.

That leads me to the second challenge. We’ve had problems with discriminatory treatment of non-eurozone Member States.

A clear example is the European Central Bank’s policy of forcing clearing houses with large euro-based transactions to move to the eurozone.

How can we say there is an EU wide single market if we say that certain businesses can only locate in certain member states?

That’s why we’re taking the European Central Bank to the European Court of Justice.

And that’s why alongside double majority voting, we fought hard for and secured a new binding legal provision in the Single Supervision Mechanism regulations to prevent discrimination against financial services providers based on their location within the EU.

Third, we’ve had problems with accountability and transparency and basic policy discipline in some European institutions.

The Commission’s legislative proposal on the financial transaction tax, for example, was contradicted by its own original impact assessment which showed that the policy would reduce EU GDP.

And then there’s the European rules on bonuses, with their damaging consequences and perverse incentives for the big salary rises we’re starting to see.

To establish the right principles, we have been taking an increasing number of cases to the ECJ – which is not something that we do lightly.

We’re going to court over the financial transaction tax, the bonus cap and short selling as well as the action I mentioned against the ECB on clearing houses.

Far from being unthinkingly anti-European, we are using the European court to enforce European principles of non-discrimination and adherence to European law.

We have a good argument in all these cases. The ECJ’s advocate general, and the Council Legal Services have on separate occasions both agreed with key UK arguments. We await final judgement.

And lastly, on the whole issue of ‘ins’ versus ‘outs’, we inherited a situation where the previous government accepted that the UK and other non-euro Member States would be liable for contributing to the costs of Eurozone bailouts.

That was completely unacceptable.

So another principle this government has established, thanks to the very hard negotiating of the Prime Minister, is that the UK and other non-euro members will not pay for European bailouts alongside the new European Stability Mechanism.

We’ve also established that those member states outside the Banking Union will not pay for bailing out banks in that Banking Union – as part of the new Single Resolution Mechanism.

After all, one of the reasons we didn’t join the euro is because we didn’t want to take on this kind of fiscal responsibility for other member states.

I have been clear since the start of the process that Eurozone integration was necessary to make the euro work better, but that it would throw up these issues and that in return we would expect to see the rights of non-euro members protected.

That has been the consistent position the Prime Minister and I have maintained for three years now.

But it is not the case that the UK is always the member state arguing for less activity or blocking things.   We’ve led the way on financial services regulation and ringfencing our banks – and we have the most stringent capital and liquidity rules in Europe.

Nor are we “sitting on the sidelines.”

We have been active in fighting our corner, building alliances and winning arguments in Brussels.

For example we ensured that the so-called “Hedge Fund Directive” protected the single market with passporting rights for EU players that meet the rules.  This was against opposition from others to keep markets closed.

We’re now fighting for the opening up of the derivatives market, to bring competition and better value to European customers.

We have achieved a lot.

We are achieving more.

But this isn’t enough.

What is becoming clearer, as Eurozone integration increases, is that we are now at a point where we are stretching the EU institutional architecture to its limits. We risk going beyond what is legally possible or politically sustainable.

The European Treaties are not fit for purpose. They didn’t anticipate a European Union where some countries would pursue dramatically deeper integration than others.

Rather than face up to the truth, those in Brussels are being forced into legal gymnastics as they try to stretch the existing Treaties to fit a situation they were not designed for.

A classic example before us at the moment is the Banking Union Single Resolution Mechanism.

Because the rules weren’t designed to support a banking bailout fund for just some EU members, those Member States taking part have had to create a hastily put together intergovernmental treaty outside the EU.

We don’t want this to be a source of legal disputes later on.

The euro has to be put on firmer foundations, for the crisis in the Eurozone may have abated, but the contradictions it revealed are not yet resolved.  We should use this moment of relative tranquillity in markets to build those foundations for the future.

And that’s why the questions thrown up by Eurozone integration are inevitably linked to the wider reform negotiations that I touched on at the start.

Ultimately I don’t think we will be able to maintain this approach of patching things up as we go along with contorted legal innovations and short term fixes.

We are taking a great risk with the future economic security of Europe if we do so.

Instead of make-do-and-mend, we should make the Treaties fit for purpose.

We are not the first to recognise this. The new German coalition agreement states “we will adapt the Treaty bases of the Economic and Monetary Union”.  Enrico Letta has also talked about Treaty change.

There is potential common ground here.

Let me recap:

Europe urgently needs economic reform.

Eurozone integration is necessary if the euro is to survive

But proper legal protection for the rights of non-euro members is also absolutely necessary – to preserve the single market and make it possible for Britain to remain in the EU.

I believe it is in no-one’s interest for Britain to come to face a choice between joining the euro or leaving the EU.

We do not want to join the euro.  But also our withdrawal from a Europe we’d succeeded in reforming would be bad for Britain.

And a country of the size and global reach of the UK leaving would be very bad for the whole of the EU.

Let us not shy away from robust democratic argument on a subject that goes to the heart of our own national interest.

Feelings run high on both sides of the argument – that is understandable.

But strong feeling must never be allowed to cloud clear judgement about where this country’s real long term economic interests lie.

It is clear what the British people want.

They refuse to accept that we just have to take the EU as it is – that one size must fit all, that change is impossible, that reform is doomed.

Nor do they accept that the only course open to us is to pack up and leave, to abandon the single market and the common rules from which we benefit, and to walk away.

They are rightly suspicious that the one thing that unites those who urge Britain to join the Euro and those who advocate leaving is their shared conviction that any change is impossible, and that there is no other way.

There is another way.

It is to change the EU and to change Britain’s relationship with it, and then to place the decision in the hands of the British people: do you want to stay in a reformed Europe, or would you prefer to leave?

That is our policy, and that is our commitment to the British people.

Thirteen years ago, William Hague warned of the dangers of the Euro – for Europe and for Britain.

He was right.

And I believe he was right too when he said that our country wanted to be in Europe but not run by Europe.

In Europe but not run by Europe. That phrase sums it all up for me.

Now we have the chance to give the British people a real choice.

The biggest economic risk facing Europe doesn’t come from those who want reform and renegotiation – it comes from a failure to reform and renegotiate.

It is the status quo which condemns the people of Europe to an ongoing economic crisis and continuing decline.

And so there is a simple choice for Europe: reform or decline.

Our determination is clear: to deliver the reform, and then to let the people decide.

And that’s exactly what we will do.

George Osborne – 2014 speech on the Economy


Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, on 6th January 2014 in Coleshill.

Thank you for inviting me to speak to you today here at Sertec.

I’m here because you’re a great manufacturing company, of the kind we need to see many more of in this country.

You make parts for British cars that are exported all around the world.

When we hear on the news that our economy is recovering, people wonder what it means for them.

For some it feels abstract, remote.

But here there’s nothing abstract about the 200 new employees this company has created in the last year.

Or the 400 additional people that Sertec has announced today it will be taking on in the next four years.

That’s a vote of confidence in the workforce here.

It’s a vote of confidence in the Midlands.

It’s also a vote of confidence in the economic plan that is working for Britain.

This factory is a good place to talk about that plan.

For you know more than most that the world does not owe Britain a living.

Car manufacturing is fiercely competitive.

Components can be sourced from around the world.

You know that there are hundreds of companies in dozens of countries that would like to be manufacturing the products you make here.

And it’s only because of your skill and your professional approach that the work comes here – here to this company.

If the quality slipped, or the costs went up or the company was badly run – then the jobs would go elsewhere.

What is true of this company is true of our country.

It’s because the rest of the world sees that Britain is a country where we’re now back in control of our destiny, a country where we’re supporting business, that jobs – like the ones here today – are being created across our country.

Over one million new jobs.

But if our country is badly run, if the finances are in a mess, and costs go up, and businesses don’t feel welcome, then jobs would quickly disappear from Britain again.

Our country was in a real mess a few years ago – more so than almost any other major country in the world.

Hundreds of thousands of people lost their jobs.

Millions of families like yours have seen their incomes squeezed.

Britain was made a lot poorer.

That’s the terrible price people totally unconnected with politics and politicians pay when you get the wrong economic policy.

It’s why getting the right plan – and holding to it – is so important.

We’ve got the right plan now.

It’s a long term plan for turning our country around.

I’ve never promised it was going to be easy.

I went out of my way to say the opposite – and be open with you about the difficult sacrifices we had to make.

And like the success of this company, it’s been a team effort – with a lot of hard work.

Now that team effort is paying off.

The plan is working.

For the first time in a long time, there’s a real sense that Britain is on the rise.

Jobs are being created.

The deficit is coming down.

That brings its own risks.

As we start the New Year, I want to warn you about a dangerous new complacency around at the moment.

You hear some talking as if the hard part of the job is done – and we can go back to the bad old habits.

But beware those who come along this year and promise you easy answers, no more sacrifices, just more spending on this and more spending on that, all paid for by more borrowing.

For the truth is there are still plenty of risks out there.

Our biggest trading partner, the Eurozone, is still weak.

And there are fears about slowing growth in the emerging economies further afield.

Here at home, the banking system is still not working as we need it to, so we’re still fixing it.

We have to do even more to encourage the exports and investment and saving our economy needs for a responsible recovery.

Above all, we’ve still got a huge amount to do to reduce the deficit and get our debts falling.

And it’s worth remembering, as the festive season comes to an end, that our own independent Office for Budget Responsibility, is predicting a slowing of quarterly GDP growth this year.

So it’s far too soon to say: job done.

It’s not even half done.

That’s why 2014 is the year of hard truths.

The year when Britain faces a choice.

Do we say: the worst is over; back we go to our bad habits of borrowing and spending and living beyond our means – and let the next generation pay the bill?

Or do we say to ourselves: yes, because of our plan, things are getting better.

But there is still a long way to go – and there are big, underlying problems we have to fix in our economy.

More repairs.

More cuts.

More difficult decisions.

That’s the choice in 2014: to go on working through a plan that is delivering for Britain, putting us back in control of our destiny with the security and peace of mind that brings; or squander what we’ve achieved and go back to economic ruin.

Ultimately it’s your choice – a choice for the British people.

Our long term economic plan has five key parts to it.

The first is to go on reducing the deficit so we deal with our debts – because that’s the way to safeguard our economy for the long term and keep mortgage rates low.

If 2014 is a year of hard truths for our country, then it starts with this one: Britain should never return to the levels of spending of the last government.

We’d either have to return borrowing to the dangerous levels that threatened our stability, or we’d have to raise taxes so much we’d put our country out of business.

Government is going to have to be permanently smaller – and so too is the welfare system.

When I took this job, Britain was borrowing more than £400 million every single day to pay for government spending.

But as a result of the painful cuts we’ve made, the deficit is down by a third and we’re borrowing nearly £3000 less for every one of you and for every family in the country.

That’s the good news.

The bad news is: there’s still a long way to go.

We’re borrowing around £100 billion a year – and paying half that money a year in interest just to service our debts.

We’ve got to make more cuts.

£17 billion this coming year.

£20 billion next year.

And over £25 billion further across the two years after.

That’s more than £60 billion in total.

Some say they’d deal with the deficit, but they shy away from committing to numbers. So this year, we’re going to ask Parliament to vote on these plans.

I want our country’s commitment to economic stability entrenched.

Even after we’ve reduced the amount we borrow each year, that still leaves us with a high debt from all the past borrowing.

That debt leaves Britain vulnerable – and I want to make us safe.

So I’m going to ask Parliament to vote too this year on a new charter for budget responsibility that will commit us to reducing those debts.

It means not spending again when borrowing falls, including using surpluses in good years to reduce debt – so in future, we fix the roof when the sun is shining.

These votes will force Parliament to make a choice and confront the truth.

We also need to confront truths about the cost of living.

I know it has been hard for families since the crash.

It is not a case of not understanding these difficulties.

It’s a case of being honest about why things are difficult and what we can actually do to make things better.

The truth is that Britain is poorer because of the great recession that happened, and families feel that.

As the economy recovers, so too will family finances.

People’s earnings are expected to go up.

Inflation has fallen, and that helps.

So too does the government’s action to cut the costs we impose on your family gas and electricity bills.

But there’s no point pretending that there’s some magic wand a Chancellor can wave to make the whole country feel richer than it actually is – or that I can control the global oil price from an office in Whitehall.

It’s simply not being straight with people.

The only way to improve people’s living standards for the long term is for Britain to earn its way in the world and create more, better jobs – just as this company is doing every day.

And if government wants to find a direct way to put money into people’s pockets, you do that by permanently cutting people’s taxes by permanently cutting the spending those taxes pay for.

That’s what the second part of our long term plan is about: cutting income taxes and freezing fuel duty to help hardworking people be more financially secure.

This April, you’ll see what that means in your wage packet.

That’s when we increase the tax-free allowance to £10,000 – and it means in total an extra £60 or so a month for the typical worker.

I’m also freezing fuel duty again this year, so your car will cost £11 less to fill up than it would have done.

And from next year, there will be tax free childcare – to help working families.

Making tax promises like these is meaningless unless you’re prepared to say how you’d pay for them.

We’ve paid for every single pound’s worth of these tax cuts – all £50 billion in total – without a single penny of extra borrowing because we’ve made the savings needed in the cost of government.

It’s all about fairness and whose side you’re on.

And while no sensible Chancellor ever rules out tax changes, our whole economic plan can be delivered by reducing spending further not by increasing taxes.

That’s how you create a country where people who work hard and want to get on are supported.

You all know that there is no better financial security than having a job – and so that’s the third part of our plan: creating more jobs by backing small business and enterprise with better infrastructure and lower jobs taxes.

Thanks to this plan, there are now a record number of people in work in our country.

But as you know here at Sertec, the competition is fierce and the work can go anywhere in the world.

If we are going to go on being a country where companies grow, invest and want to take on new people, then we’ve got to make ourselves the best place in the world to do business.

That’s why I’m cutting business taxes, introducing an employment allowance that will benefit small firms most.

It’s why I’m helping with high street business rates and now I’m abolishing jobs tax altogether for those aged under 21.

These are all steps we’re taking as part of our plan to create more jobs in Britain.

Others say they’d do the opposite.

They say businesses should pay more with a higher corporate tax rate.

I think that would send a disastrous signal to the rest of the world about the direction Britain was heading in.

It would cost jobs and investment.

It would be a massive own-goal for Britain.

It would also be a mistake if we didn’t invest in future infrastructure that our country needs to be prosperous.

Like the new power plants that keep factories like this going, and the roads and railways and broadband that carry our goods and services.

That’s why we’ve made spending on these things the priority when money is tight.

It’s why I say we need more homes, and to support families who dream of owning a home with our Help to Buy.

And it’s why we’re prepared to take controversial decisions on long term things like high speed rail, and the search for cheaper gas in shale.

Because I don’t want to condemn our country to ageing infrastructure and expensive energy when so many others in the world are heading in the direction of the future.

A strong economy and a fair economy go hand in hand.

We have to make sure the recovery supports those who work hard and play by the rules.

That’s why the fourth part of our economic plan is about reducing immigration and capping welfare.

Migration, when it’s controlled, is an important part of a successful economy.

But uncontrolled immigration, of the kind we saw over the last decade, brings pressures on public services and leads to abuse of our welfare system.

That’s why we’ve tightened the rules so people can’t just come to this country to claim benefits – and it’s why for the first time we’ve introduced an immigration cap.

That new fairness applies across our welfare system too.

Britain is a proud country that does, and in my view always should, protect the most vulnerable through our welfare system.

But it should not be a welfare system that offers up benefits as a lifestyle choice.

We need to be fair to those who need our welfare system – and fair to those like you who pay their taxes for that system.

Benefits are now capped, so no family gets more for being out of work than the average family gets from being in work.

And with our new Universal Credit, we’re going to make sure it always pays to work.

In 2014, we’re bringing in more changes.

The long term unemployed are no longer going to get something for nothing.

They’ll have to put back into their community, including compulsory work, with our Help to Work.

And this year, we will for the first time set a cap on the overall welfare budget so it can be properly controlled.

State pensions won’t be included in that cap.

As the Prime Minister said this weekend, we are committed to giving everyone who’s worked hard and saved though their lives the generous state pension they deserve.

And the country can only afford to do so because of the difficult decision we’ve taken on increasing the pension age as the population lives longer.

That saves many billions of pounds for taxpayers; and we need to save billions more from the rest of the welfare budget.

When you think about the competition this factory faces from around the globe, and the kind of world your children are going to grow up in, wouldn’t it make more sense that your government was spending your money on things like schools and science and a better NHS than more welfare?

So here’s another hard truth: welfare cannot be protected from further substantial cuts.

I can tell you today that on the Treasury’s current forecasts, £12 billion of further welfare cuts are needed in the first two years of next Parliament.

That’s how to reduce the deficit without even faster cuts to government departments, or big tax rises on people.

So when you see people on the telly who say that welfare can’t be cut anymore – or, even worse, promising they will reverse the changes we’ve already made and increase housing benefit – ask yourself this:

– what public services would they would cut instead?

– what taxes they would put up in their place?

– or would they borrow and spend more, and risk our country’s economic stability again?

This is what I mean when I say Britain has a choice.

The truth is there are no easy options here, and if we are to fix our country’s problems, and not leave our debts to our children to pay off, then cutting the welfare bill further is the kind of decision we need to make.

The final part of our economic plan is all about delivering the best schools and skills for young people so the next generation can succeed in the global race.

I want the new jobs being advertised right here at this company to go to local kids coming out of the schools and colleges here.

But that’s only going to happen if standards are high enough.

One of the most depressing discoveries of 2013 was that over the last decade Britain’s education fell even further behind other countries in the world.

Reversing that is essential.

That’s why were turning more and more schools into academies, and creating new free schools.

It’s why we insist on exam standards that are more rigorous.

We’re also creating many more apprenticeships, so more young adults get a chance to earn and learn in companies like this.

And this autumn we’ll start lifting the cap we impose on the number of university students.

If Britain is going to compete in the global race to the top, there should be no limits on aspirations – we need all our young people to develop their talents to the maximum.

So that’s our long term economic plan – with 5 key points.

Cutting the deficit.

Reducing taxes for hardworking people.

Creating more jobs by backing business.

Capping immigration and welfare.

Delivering the best schools and skills.

It is a plan that is working.

But growing the economy, helping businesses succeed, reducing the deficit: these are not an end in themselves – they are a means to an end.

So let me set out clearly what that end is, what our long term economic plan is really for – what the motivation behind it is.

Our plan is about more than rescuing our economy from the brink of collapse.

It’s about instilling a new belief in Britain.

So we can all live in a country that is in control of its own destiny in this world.

A country where we can have the peace of mind that comes with knowing you can provide for your family.

A country that offers security and a better life for the next generation.

Peace of mind.


A better life for our children.

Controlling our own destiny.

Our economic plan is for the long term.

And just as there are no short-cuts to the work you do here, there’s no short-cut to that economic security for Britain.

Thanks to the hard work of the British people, our economy is on the mend – and our country is doing better.

But what was hard won, can be easily lost.

So we have a choice in 2014.

We can give up, go back to square one, risk everything.

Or we can confront the hard truth that more difficult decisions are needed – and work through the plan that is turning Britain around.

I say: let’s finish the job.

George Osborne – 2013 Autumn Statement


Below is the text of the statement made by George Osborne, Chancellor of the Exchequer, on 5th December 2013.

Mr Speaker,

Britain’s economic plan is working.

But the job is not done.

We need to secure the economy for the long term.

And the biggest risk to that comes from those who would abandon the plan.

We seek a responsible recovery.

One where we don’t squander the gains we’ve made, but go on taking the difficult decisions.

One where we don’t repeat the mistakes of the past, but this time spot the debt bubbles before they threaten financial stability.

A responsible recovery, where we don’t pretend we can make this nation better off by writing cheques to ourselves, and instead make the hard choices.

We need a government that lives within its means, in a country that pays its way in the world.

Three and a half years ago, I set out our long term economic plan in the emergency Budget.

That plan restored stability in a fiscal crisis.

But it was also designed to address the deep-seated problems of unsustainable spending, uncompetitive taxes and unreformed public services for which there are no quick fixes.

Over the last three years we have stuck to our guns, worked through the plan.

We have done so in the face of a sovereign debt crisis abroad.

We have held our nerve while those – who predicted there would be no growth until we turned the spending taps back on – have been proved comprehensively wrong.

Thanks to the sacrifice and endeavour of the British people, I can today report the hard evidence that shows our economic plan is working.

But I also report the hard truth that the job is not yet done.

Yes, the deficit is down.

But it is still far too high and today we take more difficult decisions.

Yes, the forecasts show that growth is up.

But the same forecasts show growth in productivity is still too low and today we set out further economic reforms.

Yes, jobs are up and unemployment is down. But too many of our young people lack the skills to fill those jobs and the opportunities to acquire them – so now we take bold steps to remove that cap on aspiration.

Yes, businesses are expanding.

But business taxes are still too high and exports are too low and we must address that.

And yes, real household disposable income is rising.

But the effects of the financial crash on family budgets and the cost of living are still being felt.

So where we can afford to help hardworking families, we will continue to do so.

The hard work of the British people is paying off, and we will not squander their efforts

We will secure the economy for the long term – and this statement sets out how.


Mr Speaker, let me turn to the report from the Office for Budget Responsibility.

Again I thank Robert Chote and his team for their rigorous and independent work.

The OBR report notes that the Office for National Statistics has reassessed the depth of the great recession.

The fall in GDP from peak to trough between 2008 and 2009 was not 6.3 per cent, as previously thought – but instead was an even more staggering 7.2 per cent.

£112 billion wiped off our economy – around £3,000 for every household in this country, and one of the sharpest falls in the national income of any economy in the world.

It is a reminder of the economic calamity that befell Britain; the simple fact that our country remains poorer as a result of it; and that a lot of work still remains to put that right.

That is the past.

Let me turn to the future.

At the time of the Budget in March, the OBR forecast that growth this year would be 0.6 per cent.

Today, they more than double that forecast – and estimate growth will be 1.4 per cent.

Next year, instead of growth of 1.8 per cent, they are now forecasting 2.4 per cent.

With faster growth now, it means they’ve revised the following four years to 2.2 per cent, 2.6 per cent 2.7 per cent and 2.7 per cent.

So growth over the forecast period is significantly up.

It is still not as strong as we’d like it to be, but this is the largest improvement to current year economic forecasts at any Budget or Autumn Statement for fourteen years.

I can report that Britain is currently growing faster than any other major advanced economy.

Faster than France, which is contracting.

Faster than Germany, faster even than America.

That contrast itself points to the risks that remain for the UK from abroad, and the weakness of many of our main trading partners.

The first risk the OBR identify to our economic recovery is a recurrence of the damaging instability in the eurozone.

Even with the relative calm of recent months, the OBR still forecast that the euro area as a whole will shrink by 0.4 per cent this year.

Their growth forecasts for the US and emerging markets have also been revised down, and world trade has been weaker than they expected in March.

So while our exports are growing, they are not growing as fast as we would like.

That is because we are too dependent on markets in Europe and North America.

The Prime Minister’s visit to China this week is the latest step in this government’s determined plan to increase British exports to the faster growing emerging markets – something our country should have done many years ago.

Today I am doubling to £50 billion the export finance capacity available to support British businesses, expanding the help available to firms in these emerging markets and ensuring that our excellent new Trade Minister, Lord Livingston, will have all the firepower he needs.


Let me turn to the forecast for employment.

Today in Britain, employment is at an all time high.

And the OBR have revised their forecast for the future up.

They were expecting jobs to stay flat over the year.

But they now expect the total number of jobs to rise by 400,000 this year.

And this is being felt right across the country – since 2010 the number of jobs in Carlisle and on the Wirral, from Selby to South Tyneside – have all grown faster than in London.

Meanwhile, the number of people claiming unemployment benefit has fallen by over 200,000 in the last six months – the largest such fall for sixteen years.

Unemployment is also lower than in 2010, and is forecast to fall further from 7.6 per cent this year to 7 per cent in 2015, before falling even further to 5.6 per cent by 2018.

We have the lowest proportion of workless households for 17 years.

Mr Speaker, there were those who said it was a “fantasy” to believe that businesses could create jobs more quickly than the public sector would have to lose them.

What they should have said is that it would be fantastic if it happened.

So I’ve got good news for them.

Businesses have already created three jobs for every one lost in the public sector.

And the OBR report today forecasts this will continue: with 3.1 million more jobs being created by businesses by 2019 that, in their words, “more than offsets” the million or so reduction in the public sector head count.

So, Mr Speaker, far from the mass unemployment that was predicted, we have a record number of people in work; hundreds of thousands fewer on welfare; unemployment lower than when we came to office; and we will have 2 million more jobs than in 2010.

An economic plan that’s working.

And a government seeking a job rich recovery for all.


Let me turn now to the forecasts for government borrowing and debt. When this government came to office, the deficit was 11 per cent of GDP.

That was the highest level in our peacetime history.

One pound in every four was being borrowed.

And the former Chancellor and former Prime Minister have joined the consensus that spending was too high.

The borrowing posed a huge risk to the economic stability and credibility of the United Kingdom.

We have taken many difficult decisions to bring that deficit down.

Every one contested and opposed.

But I can report today, the effort is paying off.

The OBR use a measure of what they call “underlying public sector net borrowing” that excludes the impact of the Royal Mail pension scheme and Asset Purchase Facility transfers.

I can tell the House this underlying measure of the deficit has been revised down substantially since March.

From the 11 per cent back in 2010, the underlying deficit now falls to 6.8 per cent this year – instead of the 7.5 per cent they were forecasting back in March.

It then falls to 5.6 per cent next year, then 4.4 per cent, 2.7 per cent and in 2017-18, 1.2 per cent.

And by 2018-19 on this measure, the OBR do not expect a deficit at all.

Instead, they expect Britain to run a small surplus.

These numbers mean that the government will meet its fiscal mandate to bring the structural current budget into balance, and meet it one year early.

Let me turn to the forecasts for cash borrowing on this same underlying basis.

Mr Speaker, at this Autumn Statement last year there were repeated predictions that borrowing would go up. Instead, borrowing is down – and down significantly more than forecast.

This year we will borrow £111 billion – £9 billion less than was feared in March.

That falls next year to £96 billion, then down to £79 billion in 2015-16, £51 billion the year after, and £23 billion the year after that.

So we’re set to borrow £73 billion less over the period than was forecast in March.

And it means we are borrowing the equivalent of two and a half thousand pounds less for every household in this country.

In 2018-19, on this cash measure too, the OBR forecast that the government will not have to borrow anything at all.

Instead we will run a small cash surplus.

Of course, this will only happen if we go on working through our long term plan – delivering reductions in the deficit we plan this year, next year and the three years after.

If we give up on the plan now, we’d be saddled with a deficit that is still among the highest in Europe.

And this side of the House is not prepared to take that risk.

Of course Mr Speaker, while that deficit remains, it adds to our national debt every year.

The OBR today expect debt this year to come in at 75.5 per cent of GDP – £18 billion lower than forecast in March.

It then rises to 78.3 per cent next year, before peaking at 80.0 per cent the next year – 5 per cent lower than forecast at the Budget.

In 2016-17, it then falls, albeit slightly, to 79.9 per cent, then falls again to 78.4 per cent and then 75.9 per cent.

By 2017-18, debt is over £80 billion pounds lower than forecast in March.

The supplementary debt target is for debt to be falling in 2015-16.

At the Budget, the OBR forecast debt to be falling in 2017-18.

It is now forecast to fall in 2016-17 – that’s one year earlier.

But let me enter this note of caution.

The OBR is clear this is a cyclical improvement.

The forecast for the continuing fall in the structural deficit has not improved.

The structural deficit is the borrowing that stays behind even when the economy improves.

Thanks to our actions it has fallen from the 8.7 per cent we inherited to 4.4 per cent today – more than any other major advanced economy.

It goes on falling but no faster than we previously expected.

Because, as we have always argued, the central task of reforming government and controlling spending does not simply dissolve when growth returns.

It supports the case we have made all along that economic growth alone was never going to be enough to repair Britain’s broken public finances.

An improving economy does not let us off the hook for taking the difficult decisions to make sure government lives within its means.


And so the single most important economic judgement I make today is this:

We will not let up in dealing with our country’s debts.

We will not spend the money from lower borrowing.

We will not squander the hard-earned gains of the British people.

The stability and low mortgage rates, lower deficit and falling borrowing have been hard won by this country, but let us be clear: they could easily be lost.

That’s why we must work through our plan to secure the British economy for the long term.

So this Autumn Statement is fiscally neutral across the period.

Indeed, today I can announce that we will take three new steps to entrench Britain’s commitment to sound public finances.

First, we will bring forward next year an updated Charter for Budget Responsibility and ask Parliament to support it.

I can say today that government must ensure that debt continues to fall as a percentage of GDP, including using surpluses in good years for this purpose.

In other words this time we will fix the roof when the sun is shining.

We will look to see whether the five year time horizon of the fiscal mandate could be shorter and even more binding now that the public finances are closer to balance.

And we will see how fiscal credibility could be further enhanced by a stronger parliamentary commitment to the path of consolidation already agreed for 2016-17 and 2017-18.

The answers will be written into an updated Charter for Budget Responsibility which will be presented to Parliament a year from now and voted upon.

The second step we take today to entrench Britain’s commitment to sound public finances is this.

We will cap overall welfare spending.

Welfare budgets were completely out of control when we came to office and the number of households where no-one had ever worked nearly doubled. We have taken very difficult decisions to bring benefit bills down – and saved £19 billion a year for the taxpayer.

We need to maintain that discipline.

The percentage of spending in the UK subject to fixed spending controls is very low by international standards at just 50 per cent.

So from next year, we will introduce a new cap on total welfare spending.

I have had representations that the basic state pension should be included.

But that would mean cutting pensions for those who’ve worked hard all their lives because the costs on, say, housing benefit for young people had got out of control.

That’s not fair – so we won’t include the state pension, which is better controlled over a longer period.

We will also exclude from the cap the most cyclical of benefits for jobseekers.

All other benefits – from tax credits to income support to the vast majority of housing benefit will be included in the cap.

At the beginning of each Parliament, the Chancellor of the day will set the welfare cap for the coming years and ask the House of Commons for its support.

If the cap is breached, they will have to explain why and hold a vote in this House.

The principle is clear: The government has a responsibility to taxpayers to control their spending on welfare; and Parliament has a responsibility to the country to hold the government to account for it.

That brings me to our third step.

Ultimately, the test of fiscal credibility is whether you are prepared actually to take the difficult decisions to keep spending under control.

Tight discipline means that most departments are now living well within their set budgets.

This year they are expected to underspend by £7 billion, a testament to good financial management.

We can therefore be confident in reducing the contingency reserve by £1 billion this year and reducing departmental budgets by a similar amount in the next two years.

This will save a further £3 billion in total.

The protections for the NHS and schools will apply.

The security and intelligence agencies and HMRC will be exempt. The Barnett formula means that over the next two years, the budgets for Scotland, Northern Ireland and Wales will see a net increase.

We will not apply these additional savings to local government, because we expect them to freeze council tax next year.

This year, Britain becomes the first G8 country to meet our promise to the poorest in the world to spend 0.7 per cent of our national income on development.

But we don’t have to increase the DfID budget further to do that.

The effectiveness of the British government aid effort in the Philippines, matched by the generosity of the British public, is a reminder of what marks us out as a nation – and we in this country can be very proud of it.

I am also immeasurably proud of the work of Britain’s armed forces.

As they wind down their operations in Afghanistan, the budget we spend there is also falling fast.

So we can this year reduce the military special reserve by a further £900 million, while still funding all operational costs.

And to reflect our society’s debt of gratitude to our servicemen and women, and their families, I want to make a further £100 million of LIBOR fines available to our brilliant military charities and extend support to those who care for the work of our police, fire and ambulance services.

The terrible events in Glasgow this weekend and the work they’re doing right now to cope with the adverse weather remind us how much we owe them.

Mr Speaker, discipline with the public finances means more than just words.

It means taking difficult decisions and being prepared to stick to them.

So using surpluses in good years to keep debt falling.

So we fix the roof when the sun is shining.

It means capping welfare to keep it under control, and where we do want to spend more money, finding extra ways to pay for it.

One of the biggest single items of government spending is the basic state pension.

I’m proud to be in a government that has introduced a triple lock that ensures a fair and generous increase in the state pension every year to those who’ve worked hard all their lives.

I can confirm that next April the state pension will rise by a further £2.95 a week.

This increase, and the other increases under this Government, mean pensioners will be over £800 every year better off.

I can announce that we are also going to offer current pensioners an opportunity to make voluntary national insurance contributions to boost their income in retirement.

We will also extend this opportunity to those who reach pension age before the introduction of the single tier pension.

This will help those who haven’t built up much entitlement to the Additional State Pension, especially women and the self-employed.

But we also have to guarantee that the basic state pension is affordable in the future, even as people live longer and our society grows older.

The only way to do that is to ensure the pension age keeps track with life expectancy.

The Pensions Bill, currently going through Parliament, puts in place reviews of the pension age every five years.

Now we set the principle that will underpin those reviews.

We think a fair principle is that, as now, people should expect to spend up to a third of their adult life in retirement.

Based on latest life expectancy figures, applying that principle would mean an increase in the state pension age to 68 in the mid 2030s and to 69 in the late 2040s.

The exact dates will be set by the future statutory reviews and in line with the most up to date demographic data, of which the next update is published next week.

This is one of those difficult decisions governments have to take if they’re serious about controlling the public finances.

Future taxpayers will be saved around £500 billion pounds.

Young people will know our country can afford to give them a proper pension when they retire.

That’s this generation fulfilling its obligations for fiscal responsibility to the next generation – not saddling them with the debts and the decisions we weren’t prepared to deal with ourselves.


Mr Speaker, having sound public finances also means making sure that we collect the taxes that are due.

Most wealthy people pay their taxes and make a huge contribution to funding our public services.

The latest figures show that 30 per cent of all income tax is paid by just 1 per cent of taxpayers.

We’ve given incentives to enterprise, cut punitive tax rates.

But alongside those paying the most tax are those who try to avoid paying their fair share of tax.

So today we set out in detail the largest package of measures to tackle tax avoidance, tax evasion, fraud and error so far this Parliament.

Together it will raise over £9 billion over the next five years.

We’re going to tackle the growth of intermediaries disguising employment as false self employment, depriving workforces of basic employment rights like the minimum wage in a bid to avoid employer national insurance.

We’ll halve the final period exemption for capital gains tax private residence relief. We will end the abuse of dual contracts, offshore oil and gas contracting, derivatives linked to profits and share buy backs.

And we will ensure the tax advantages of partnerships aren’t abused either.

We are introducing a new, limited power that requires people to pay upfront their taxes where the scheme they used has already been struck down by the courts.

We are going to strengthen Whitehall’s capacity to prevent error and tackle fraud in the benefit and tax credit systems, and expand their efforts to recover money that is owed.


And there is one personal tax change we make today which is not about avoidance, but is about fairness.

Britain is an open country that welcomes investment from all over the world, including investment in our residential property.

But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not.

That is unfair.

So from April 2015, we will introduce capital gains tax on future gains made by non residents who sell residential property here in the UK.

I can also announce, from January 1st next year, the rate of the bank levy will rise to 0.156 per cent and its base will be broadened in ways we have consulted on.

The levy will raise £2.7 billion in 2014-15 and £2.9 billion each year from 2015-16.

The country stood behind the banks in the crisis, and now it is right that they support the country in recovery.


Mr Speaker, a government that lives within its means is essential to secure the economy for the long term – but it is not sufficient.

Britain has to earn its way in the world.

Our infrastructure needs to be overhauled.

We have to help our businesses compete.

Above all, our young people need the skills to succeed in the modern world.

This Autumn Statement takes the next big steps in all these areas.

Let me start with infrastructure.

We’re going to be spending more on capital as a proportion of national income on average over this decade, than over the whole period of the last government.

That’s involved making tough choices about priorities in spending and sticking to them.

But that’s not the most difficult decision in this area.

We have to decide whether we are serious as a country about competing in the modern world and say to people: we need the new roads, and the new railways including the Northern Hub and High Speed 2.

We have to say: we are prepared to push the boundaries of scientific endeavour, including in controversial areas, because Britain has always been a pioneer.

The country that was the first to extract oil and gas from deep under the sea should not turn its back on new sources of energy like shale gas because it’s all too difficult.

And the country with the world’s first civil nuclear programme shouldn’t be a country that says we can do this no longer.

Yesterday, my Right Honourable Friend the Chief Secretary and Lord Deighton published the update to the National Infrastructure Plan.

That includes a cooperation agreement with Hitachi on the next nuclear power station in Anglesey.

It includes a deal with the insurance industry to invest at least £25 billion in UK infrastructure. And we published the strike prices that support long term investment in off shore wind, and prioritise it over onshore wind.

And today we go further.

A commitment to invest in quantum technology.

A new tax allowance to encourage investment in shale gas that halves tax rates on early profits.

And in the week in which Professor Peter Higgs travels to Stockholm to collect his Nobel Prize for Physics, we commit to build a new centre in his name at Edinburgh University.

Because science is a personal priority of mine.

Some of the most important infrastructure for British families is housing and we have to confront this simple truth: if we want more people to own a home, we have to build more homes.

And the OBR is absolutely right today to draw attention to the weakness of housing supply in this country.

The good news is the latest survey data showed residential construction growing at its fastest rate for a decade.

And our hard-won planning reforms are delivering a 35 per cent increase in approvals for new homes.

But we need to do more.

So this week we are announcing a billion pounds of loans to unblock large housing developments on sites in Manchester and Leeds and across the country.

And we are going to increase the Housing Revenue Account borrowing limit by £300 million.

Aspiration isn’t only for people who can afford their own home.

We want to regenerate some of our most run down urban housing estates.

Councils will sell off the most expensive social housing, so they can house many more families for the same money.

We are going to give working people in social housing a priority right to move if they need to for a job.

Right to Buy applications have doubled under this government and we’ll expand it more.

And the very same spirit of aspiration that underpins Right to Buy is what drives this government with Help to Buy.

It’s not enough to build more houses if families who can afford mortgages don’t have the large deposits that the banks have demanded.

Help to Buy is now helping thousands to own their own home.

I can announce today that Aldermore and Virgin, two challenger banks, expect to join the scheme this month. Help to aspiring families and building more homes – that’s what we stand for.

But we must also avoid the mistakes of the last decade.

We want a responsible recovery.

That is why I am the first Chancellor to give the Bank of England the responsibility and the power not only to monitor overall debt levels, but to take action to deal with asset bubbles if they threaten our stability.

We want a functioning, stable housing market.

The OBR’s latest house price forecast, while higher, still has real house prices 3.1 per cent lower in 2018 than at their peak in 2007.

Together with Governor Carney, I acted last week to focus the Funding for Lending scheme away from mortgages onto small business lending, where its support is still needed.

It’s precisely because the authorities can act in this targeted and pre-emptive way – and because our public finances are under control – that the Bank can keep overall interest rates lower for longer and support the rest of the economy.


Investing in the physical infrastructure of our country is critical to our future.

But in this global economy, it is better education and skills that hold the key to long-term national success.

This week’s PISA scores show how much ground this country has to make up.

My Right Honourable Friend the Education Secretary is doing more to transform schools standards, and raise the aspirations of pupils from the poorest families than anyone who has done that job before him.

His expansion of free schools and academies has the full backing of this Chancellor.

We also know that children do better at school when they have a proper meal inside them.

This Autumn Statement has found the financial resources to fund the expansion of free school meals to all school children in reception, year 1 and year 2 announced by the Deputy Prime Minister and supported by me.

But today we also focus on what happens when our young people leave school – and we do more to help them.

First, we will not abandon those who leave school with few or no qualifications.

At present, Jobcentre Plus does almost nothing to help 16 and 17 year olds who aren’t in work or education.

We will change that and now fund the jobcentres to support these very young adults to find an apprenticeship or a traineeship.

Without basic maths or English, there is a limited chance any young person will be able to stay off welfare.

So we are taking a new approach.

Starting in some areas at first, anyone aged 18 to 21 signing on without these basic skills will be required to undertake training from day one or lose their benefits.

If they are still unemployed after six months, they will have to start a traineeship, take work experience or do a community work placement – and if they don’t turn up, they will lose their benefits.

A culture of worklessness becomes entrenched when young people can leave school and go straight onto the dole, with nothing expected in return.

That option is coming to an end in our welfare system.

The second reform is to apprenticeships.

We’ve doubled the number of apprenticeships.

And now we will transform the way they are provided by funding employers directly through HMRC.

I can tell the House there will now be an additional 20,000 higher apprenticeships over the next two years.

And I can also announce a big expansion of Start Up Loans, through which a new generation of entrepreneurs is being created.

50,000 more people will be helped to fulfil their aspiration to start their own business.

And we’re extending the New Enterprise Allowance too.

Mr Speaker, this year is also the fiftieth anniversary of the Robbins Report, which challenged the nonsense that university was only suitable for a small few.

In 1963, Robbins said that “courses of higher education should be available for all those who are qualified by ability and attainment to pursue them and who wish to do so”.

That was true then, I believe it should remain true today.

Our reforms to student loans, difficult as they were, have put our universities on a secure footing.

Some predicted that applications from students from poor backgrounds would fall.

Instead I can report that this year we have the highest proportion of young people from disadvantaged backgrounds applying to university ever.

But there is still a cap on aspiration.

Each year, around 60,000 young people who have worked hard at school, got the results, want to go on learning and want to take out a loan to pay for it, are prevented from doing so because of an arbitrary cap.

That makes no sense when we have a far lower proportion of people going to university than even the United States, let alone countries like South Korea.

Access to higher education is a basic tenet of economic success in the global race.

So today I can announce that next year we will provide 30,000 more student places – and the year after we will abolish the cap on student numbers altogether. Extra funding will be provided to science, technology, and engineering courses. The new loans will be financed by selling the old student loan book, allowing thousands more to achieve their potential.


Mr Speaker, education underpins opportunity.

It is businesses that provide those opportunities.

And the best way to help businesses is by lowering the burden of tax.

KPMG’s report last week confirmed for the second year running that Britain has the most competitive business tax system.

Some in this House suggest that our response to this good news should be to increase corporation tax from 20 per cent.

Today we publish the first of our studies into the dynamic effects of tax changes – that show our corporation tax cuts increase investment and raise productivity.

So much so that over half of the cost to the Treasury of the tax cut will be recovered because of higher growth.

So putting up corporation tax hits investment, cuts productivity and raises much less.

We thank the Honourable Members for their submission, but we think it would be economic madness to pursue it.

Quite the reverse.

Today, we take further steps to make our business taxes yet more competitive.

The Budget announcement that we would abolish stamp duty on AIM shares was applauded around the world.

Today, we also abolish stamp duty for shares purchased in exchange traded funds to encourage those funds to locate in the UK.

We’re making our successful film tax relief even more generous, and look to extend the principle, including to regional theatre.

We set out major reforms to encourage employee ownership of the kind that makes John Lewis such a success.

And from April, we will be one of the first countries in the world to introduce a new tax relief for investment in social enterprises and new social impact bonds.

I want to thank Sir Ronnie Cohen and my Honourable Friend the Charities Minister for all their help in putting this innovative scheme together.

Mr Speaker, business rates impose a heavy burden on businesses of all sizes.

Today, we will help ease that burden.

Here’s how.

If we’d followed that plan, small businesses would have faced a rate increase of up to £3,375 pounds.

We rejected that plan.

Instead, we have extended that rate relief scheme year after year.

It was due to expire next April.

We will now extend it for another whole year.

We’ve also listened to the small business groups and we’ll relax the rules that discourage these firms from expanding and opening extra premises.

But that doesn’t go far enough.

All businesses are expecting rates to rise by 3.2 per cent next year.

Instead, I will cap the inflation increase in business rates for all premises at 2 per cent from next April.

We will also allow businesses to pay their rates in 12 monthly instalments and clear almost all of the backlog of valuation appeals by July 2015, with reform of business rates on the agenda for the 2017 revaluation.

But Mr Speaker, there is one group of businesses that have found the recession especially hard – as it has coincided with a rising challenge from the internet that is only getting stronger.

These are our local retailers – the shops, the pubs and the cafes that make up our high streets across Britain.

With Small Business Saturday this weekend, I want the government to do all it can to help them.

We’re already changing the planning rules to help town centres compete.

To get the vacant shops that blight too many town centres to open again, I am introducing a new reoccupation relief that will halve the rates for new occupants.

But Mr Speaker, we can do more, and I want to thank my Honourable Friends for Wolverhampton South West, Nuneaton, Hastings and Rye and many others for their campaign.

Like them, I also want to help those who have struggled hard on our high streets – often working long hours for not enough in return.

So I can announce today that for the next two years every retail premise in England with a rateable value of up to £50,000 will get a discount on their business rates.

This discount will be worth £1,000 off their bills.

This is what we offer.

Business rates capped.

For the smallest firms, no rates at all.

And help for the high street.

A thousand pounds off for small shops, pubs, cafes and restaurants across our country.

The people in these businesses epitomise the hardworking values this government supports.

And we’re backing Britain’s businesses all the way.


And we are backing Britain’s families.

Next April, the personal allowance will reach £10,000.

This government is delivering an income tax cut worth up to £700 a year to over 25 million hardworking people.

We’re now helping councils freeze it for the whole of this Parliament.

Tax free childcare is being introduced.

And free school meals are on their way.

But there is more we’re doing to help.

This Autumn Statement confirms that from April 2015 we will introduce a new transferable tax allowance for married couples.

Available to all basic rate taxpayers, it enables people to transfer £1,000 of their personal allowance to their wife, husband, or civil partner.

It is just a start.

And I confirm today that we will introduce a new uprating mechanism that ensures that the new married couples tax allowance is automatically increased in proportion to the personal allowance.

Four million families will benefit, many of them among the poorest working families in our country.

This measure, along with the others we take today, ensures that across this Parliament our policies are progressive – showing we’re all in this together, with the very rich paying the most.


We’re also helping families with their energy bills.

Not with a transparent con by pretending that we can control the world oil price.

But instead by focussing on the thing government can and should control: the levies and charges that previous Energy Secretaries piled on bills.

This week we deliver on the promise made by the Prime Minister to roll back those levies.

The result: an average of £50 off family bills.

We’re doing this in a way that supports the lowest income families.

Reduces carbon.

Supports investment in our energy infrastructure.

And as the document shows, does not add a penny to the tax bill families pay.

My political philosophy is clear: instead of penalising people with more taxes and more regulation, give them incentives by reducing their taxes and their bills.

As I’ve often said, going green doesn’t have to cost the earth.


That brings me on to fuel duty.

Instead of those rises, we abolished the escalator, and we have cut and then frozen fuel duty.

I’ve had further representations from many Honourable Friends, from the Member for Blackpool North and Cleveleys, to the Member for Argyll and Bute, and of course, the Member for Harlow who is such a champion of the people he represents.

I said earlier this autumn that if we could find the money, I’d like to go on freezing duty.

Today I can report that because we have taken difficult decisions to control the public finances, I can deliver on that promise.

Next year’s fuel duty rise will be cancelled.

Instead of petrol taxes going up by 2 pence a litre, they will stay frozen.

That means compared to the previous government’s plans, petrol will be 20 pence a litre less.

That’s £11 less every time you fill up.

A saving for drivers over this Parliament of £680.

Double that for a small business with a van.

Cancelling fuel duty rises has been a major priority of the Government.

A £22 billion pound demonstration that we’re on the side of hardworking people in this country.

A married couples allowance.

£50 off energy bills.

We’re helping those who drive a car and we’re helping those who get the train too.

For fares next January were due to go up by 1 per cent above inflation.

We are going to keep average fares flat in real terms.

Mr Speaker, on this side of the House we know there’s one thing more than any other that has supported families through these difficult times.

And that is being in work.

At the heart of our economic plan is support for the creation of more jobs.

That’s also why in the last Budget, I introduced the Employment Allowance, that eliminates the jobs tax for almost half a million small businesses.

And that’s why we will go further still.

We are going to abolish the jobs tax on young people under the age of 21.

Employer national insurance contributions will be removed altogether on a million and a half jobs for young people.

We’re not going to leave young people behind as the economy grows.

We are going to have a responsible recovery for all.

The cost for a business of employing a young person on a salary of £12,000 will fall by over £500.

For someone on £16,000, that’s over £1,000 off.

I want to commend my Honourable Friends for Braintree and Carlisle and the Million Jobs campaign for highlighting this issue.

The change requires legislation.

It will come into force in April 2015, and it won’t apply beyond the upper earnings limit.

This country is working through its long term plan.

Bringing down the deficit and dealing with the debt.

Spending less on welfare and making the big decisions on infrastructure.

Living within our means and cutting tax on business.

Making work pay and letting people keep more of what they earn.

Confidence in the next generation, as they make their way in education and in the workplace.

This Statement shows the plan is working.

It’s a serious plan for a grown up country.

But the job is not done.

By doing the right thing, we’re heading in the right direction.

Britain’s moving again; let’s keep going.

George Osborne – 2013 Conservative Party Conference Speech


Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, to the 2013 Conservative Party Conference.

At every Party Conference since the election, as we have gathered, the question for us, the question for me, the question for our country, has been: ‘is your economic plan working?’. They’re not asking that question now.

The deficit down by a third. Exports doubled to China. Taxpayers’ money back from the banks, not going in. 1.4 million new jobs created by businesses. 1,000 new jobs announced in this city today. Our plan is working.

We held our nerve in the face of huge pressure. Now Britain is turning a corner. That is down to the resolve and to the sacrifice of the people of this country. And for that support we owe the British people a huge heartfelt thank you. Thanks to you: Britain is on the right track.

So now families, working hard to get on, anxious about the future, are asking these questions: Can we make the recovery last? And will I feel it in my pocket?

My approach has always been to be straight with people. So let me answer these questions directly.

‘Yes’, we can make the recovery a lasting one. But it won’t happen by itself. Many risks remain. We have to deal with our debts and see our plan through. And ‘Yes’, if the recovery is sustained then families will start to feel better off. Because what matters most for living standards are jobs, and low mortgage rates, and lower taxes. But family finances will not be transformed overnight. Because Britain was made much poorer by the crash. That is what happens when you get a catastrophic failure of economic policy of the kind we saw under Labour. When no-one prepares in the boom for the bust. When banks get bailed out. And when government budgets spiral out of control. We are never going to let that happen to our country again.

I share none of the pessimism I saw from the Leader of the Opposition last week. For him the global free market equates to a race to the bottom with the gains being shared among a smaller and smaller group of people. That is essentially the argument Karl Marx made in Das Kapital. It is what socialists have always believed. But the irony is this: It is socialism that always brings it about. And it is the historic work of this Party to put that right. Because attempts to fix prices and confiscate wealth crush endeavour and blunt aspiration. And the people who suffer are not the rich, but the hundreds of thousands put out of work. The millions made poorer. The generation whose hopes are blighted. It is working people who always pay the price when the economy is ruined. That is what Labour did to the workers. And the British people are never going to let them forget it.

By contrast, I’m an optimist about the world. I am a believer in freedom and free markets. I see the global economy growing. I see hundreds of millions of people in places like India and China leaving grinding poverty to join it. That is something to celebrate.

It doesn’t have to be a threat to this country. It is a huge opportunity. But we have to understand that the wealth of nations depends on some basic truths. Jobs are only created when people build businesses that are successful and can expand. Exports only happen if those businesses are making things that others in the world want to buy. Investment only flows if your country is a more attractive place to do business than other countries. The wealth this creates can be spread widely across the nation.

But only when every child gets a good education; when each adult has the incentive to work; and every family gets to keep more of what they earn. To achieve all this you need to get the fundamentals right: economic stability, sound public finances, safe banks, excellent schools & colleges, competitive taxes, amazing science, welfare that works.

There’s no short cut to any of these things. Just the hard graft of putting right what went so badly wrong and forging a new attitude in this country that says: We are not afraid of the future because we intend to shape it.

So there’s no feeling at this Conference of a task completed or a victory won. We know it’s not over. Until we’ve fixed the addiction to debt that got this country into this mess in the first place. It’s not over. Until we can help hardworking people to own a home, to save, to start a business. It’s not over. Until we’ve helped the long term unemployed condemned to a life on the dole. It’s not over. Until there is real faith that our childrens’ lives will be better than our own. It is not over. This battle to turn Britain around – it is not even close to being over.

We are going to finish what we have started. What I offer is a serious plan for a grown-up country. An economic plan for hardworking people. That will create jobs. Keep mortgage rates low. Let people keep more of their income – tax free. It is the only route to better living standards. For without a credible economic plan, you simply don’t have a living standards plan. We understand that there can be no recovery for all – if there is no recovery at all.

The events in Italy and deadlock in Washington this week are a stark reminder that the debt crisis is not over. And yet the last fortnight has shown there’s no serious plan coming from any other party. The Liberal Democrats at their Conference were jostling for position. I have to tell you today, that Nick Clegg has informed us of his intention to form a new coalition. For the first time, he’s intending to create a full working relationship with Vince Cable. Mind you, at their conference Vince Cable did do something that was undeniably Tory. If I’d been there, I wouldn’t have turned up to the Lib Dem economic debate either. But at least they had an economic debate.

Labour’s economic announcements amounted to: Declaring war on enterprise; a tax rise on business; and an apprenticeship policy that turned out to be illegal.

And then there was the energy announcement that completely unraveled. Any politician would love to tell you that they can wave a magic wand and freeze your energy bill. Everyone wants cheaper energy. So we’re legislating to put everyone on the cheapest tariff.

But I’ll tell you what happens when you draw up policy on the back of a fag packet. Companies would just jack up their prices before the freeze so in the short term, prices go up. And companies would not invest in this country and build the power stations we need – so in the long term, prices go up.

So that’s Labour’s offer: Get hammered with high prices now. Get hammered with high prices later. Higher energy prices for all. But don’t worry, there’s a phony freeze on prices in between. How should I put it? Britain can do better than that. But perhaps with all this talk of blackouts we’ve been a bit unfair on Ed Miliband’s leadership. We used to think: lights on, but nobody’s home. It turns out we were only half right.

I remember when we were in opposition and we made uncosted commitments and unworkable promises to abolish things like student fees. We felt good at Conferences like these. Then we lost elections. David Cameron got us to face the truth about the way we had come to be seen. He forced us to be credible.To reach out to all parts of society.Last week, Labour didn’t do that. They retreated to the left.

Ed Miliband told delegates he could make all our problems disappear.That he could send everyone a cheque in the post.But it isn’t based on truth. More borrowing and more debt remains their economic policy.

But they no longer dare talk to the British people about it.Instead, they’d much rather just talk about the cost of living. As if the cost of living was somehow detached from the performance of the economy. Well you ask the citizens of Greece what happens to living standards when the economy fails. You ask someone with a mortgage what happens to their living standards when mortgage rates go up. Just a 1 percent rise means an extra £1,000 on the average mortgage bill.

You ask the citizens of this country what would be an absolute disaster for living standards. They’ll tell you. Higher borrowing. Higher welfare costs. Higher taxes. Meaning: Higher mortgage rates, and higher unemployment.

These aren’t the solution to lower living standards. They are the cause of lower living standards. And this country is paying a very high price for that lesson.

If you want to know the consequences of an Ed Miliband premiership, just look at the plan of the man who knows him best: His brother. David Miliband. One: leave Parliament. Two: leave politics. Three: leave the country. Four: dedicate your life to International Rescue. David and Ed Miliband. The greatest sibling rivalry since the Bible. Cain and not very Abel.

Our own rescue mission for the British economy is far from complete. People know the difference between a quick fix con and a credible economic argument. Here’s our serious plan for a grown-up countr:

First, sound money. The bedrock of any sustained recovery and improved living standards is economic stability. That is what the hard work and sacrifice of the last three years has all been about. In that time we have brought the deficit down by a third. And the British public know that whoever is elected will face some very hard choices. Let me tell you the principles I bring to that task. Our country’s problem is not that it taxes too little. It is that its government spends too much.

So while no responsible Chancellor ever rules out tax changes, I think it can be done by reducing spending and capping welfare, not by raising taxes. That’s my plan.

And surely the lesson of the last decade is that it’s not enough to clean up the mess after it’s happened?You’ve got to take action before it happens. It should be obvious to anyone that in the years running up to the crash this country should have been running a budget surplus. That’s what we mean when we say they didn’t fix the roof when the sun was shining.

Let us never make that same mistake again. Never again should anyone doing my job be so foolish, so deluded, as to believe that they have abolished the age-old cycle of boom and bust. So I can tell you today that when we’ve dealt with Labour’s deficit, we will have a surplus in good times as insurance against difficult times ahead. Provided the recovery is sustained, our goal is to achieve that surplus in the next Parliament. That will bear down on our debts and prepare us for the next rainy day. That is going to require discipline and spending control. For if we want to protect those things we care about, like generous pensions and decent healthcare, and buy the best equipment for the brave men and women who fight in our armed forces, all of us are going to have confront the costs of modern government – and cap working age welfare bills. And only if we properly control public expenditure will we be able to keep lowering taxes for hardworking people in a way that lasts.

I’ve never been for tax cuts that are borrowed. I want low taxes that are paid for. We also want to go on investing in the essential infrastructure of our country – the roads and railways and science and communications that are the backbone of the future economy. So we should commit, alongside running a surplus and capping welfare, to grow our capital spending at least in line with our national income. These principles will form the foundation of our public finance policy and I will set out the details next year.

And for those who ask: Is this necessary? I say: What is the alternative? To run a deficit for ever? To leave our children with our debts? To leave Britain perilously exposed to the next storm that comes? This crisis took us to the brink. If we don’t reduce our debts, the next could push us over. Let us learn from the mistakes that got Britain into this mess. Let us vow: never again This time we’re going to run a surplus. This time we’re going to fix the roof when the sun is shining.

So first, our plan secures sound public finances. Second, it supports the aspirations of hard working people and lets them keep more of the money they earn. We are increasing to £10,000 the amount you can earn before you pay a penny of income tax. That is a real achievement, delivered in budget after budget by a Conservative Chancellor of the Exchequer.

The Liberal Democrats like to point out that during the election David Cameron said he’d love to increase the tax allowance, but warned it’s not easy to afford. You know what? He did say that. And he was right. The difficult thing is not increasing the tax-free allowance. The difficult thing is paying for it. But we’ve done it. The result: an income tax cut for 25 million people. Equivalent to a rise of almost 10 percent in the minimum wage. Real money in peoples’ pockets.

For we are the party of hard working people. And to anyone who questions that I say: Go to the workplaces of Britain, like the huge Morrisons warehouse in Sittingbourne, and meet the fork lift truck drivers there. Go to the Warburton factory near Birmingham. Meet the people who work all hours or meet the night crews repairing the M6. Hardworking people better off because of Conservative tax cuts. These are the people we stand alongside.

And because we’re getting the public finances back under control, we’ve been able to help in other ways too. Freezing council tax. Cutting beer duty. Tax free childcare. And thanks to our Prime Minister, now a one thousand pound married couples allowance too. A Conservative promise made and a Conservative promise more than delivered.

We’ve cut fuel duty. Abolished Labour’s escalator. And I can tell you today that provided we can find the savings to pay for it, I want to freeze fuel duty for the rest of this Parliament. Conservatives don’t just talk about being on the side of hardworking people. We show it day in day out in the policies we deliver. People aspire to keep more of their income – tax free. And many aspire to run their own business and work for themselves. My parents planned carefully, took a risk, and set up a small manufacturing company more than forty years ago.

The company grew. Employed more people. And the life of the family business – the orders won, the first exports, the recessions and recoveries – these were the backdrop of my childhood. I’m hugely proud of my parents – of what my parents achieved. And I’m proud that they’re here in this hall today. You should know this about me:

I will always be on the side of those who use their savings, take a risk, and put everything on the line to set up their own company. Labour increased small business tax. I’ve cut it. Labour were extending business rates to the smallest firms. I’ve exempted them. Now, our new Employment Allowance is going to take a third of all the businesses out of paying national insurance altogether. We Conservatives are nothing if we’re not the party of small business, and that’s the way it’s going to stay.

And we’re the party of home ownership too. I’m the first person to say we must be vigilant about avoiding the mistakes of the past. That’s why I gave powers to the Bank of England to stop dangerous housing bubbles emerging. But too many people are still being denied the dream of owning their own home.

So instead of starting the second phase of Help to Buy next year, we’re starting it next week.

There are some people – many living in the richest parts of London – who say we shouldn’t be doing these things. I have this to say: Take you arguments down the road to Nelson or Colne, where house prices have fallen for the past five years. Take your arguments to Bury, or Morecambe, where young working couples are still living at home with their parents. Take your arguments to our great towns and cities where there are families who have saved for years, earning decent salaries, who can afford the mortgage repayments but can’t possibly afford the deposit being asked by the banks these days.

Take your arguments to those families and say: ‘This policy is not right. You shouldn’t be allowed to get your home.’ I tell you what they’ll say back: ‘It’s alright for you. You’ve got your own home. We’ve been saving for years. What about us?’

I know whose side this Party is on. We are the party of aspiration. The housebuilding party of Macmillan. The party of Thatcher’s right to buy. And now the party of David Cameron’s Help to Buy. We are the party of home ownership and we’re going to let the country know it. We are also going make sure no one is left behind as our economy recovers. Our goal is nothing short of a recovery for all. That’s the third part of our economic plan.

Lectures from the Left on fairness, quite frankly, stick in the throat. Under their government: the richest paid lower tax rates than their cleaners; tax avoidance boomed; inequality increased; youth unemployment doubled; the gap between the north and the south grew; and the number of households where no one worked reached record levels.


Theirs was the unfairest government of them all.

And contrast this with what we have done. And when I say we, I mean we Conservatives. I sit at that Cabinet table and I know who has really put forward the policies that are delivering a fairer society. The pupil premium to support the most disadvantaged children: that was Michael Gove’s idea, front and centre of the last Conservative manifesto.

Our commitment on international aid. Delivered by Andrew Mitchell and Justine Greening. Action on domestic violence – that’s Theresa May The international campaign to get rape recognized as a war crime – led by William Hague. New care standards for the elderly – Jeremy Hunt. The anti avoidance measures in Budget after Budget: the painstaking work of our Conservative Treasury team Greg Clark, David Gauke, Sajid Javid, and Amber Rudd. Powers to the Cities, rights for gay people, the biggest ever rise in the state pension.

All delivered by Conservatives in Government.

And the overhaul of our entire welfare system, making sure work always pays. That’s Iain Duncan Smith’s life’s mission.

These are all achievements of the modern, reformed, Conservative party we have worked so hard to create. But as we change our party and govern our country, there is still more to do. I am part of the generation of Conservatives that came after the great struggles of the 1980s. That government rescued the country from a tail-spin of decline. It laid the foundations of the renewal of cities like Manchester. But we shouldn’t pretend we got everything right.

Old problems were solved. But some new problems emerged. In some parts of the country, worklessness took hold and we didn’t do enough to stop that. And as a local Member of Parliament here, I know that in some parts of the North of England we still have to work hard to overcome the long memories of people who thought we didn’t care.

Labour made that problem of welfare dependency worse. By the time they left office, five million people were on out of work benefits. What a waste of life and talent. A generation of people recycled through the job centres, collecting their dole cheques year in year out, and no one seemed to notice.

And an open-door immigration policy meant those running the economy didn’t care. There was always an uncontrolled supply of low-skilled labour from abroad. Well, never again.

We’ve capped benefits and our work programme is getting people into jobs. We’ve cut immigration by a third. But what about the long term unemployed? Let us pledge here: We will not abandon them, as previous governments did. Today I can tell you about a new approach we’re calling Help to Work. For the first time, all long term unemployed people who are capable of work will be required to do something in return for their benefits, and to help them find work.

They will do useful work putting something back into their community. Making meals for the elderly, clearing up litter, working for a local charity. Others will be made to attend the job centre every working day. And for those with underlying problems, like drug addiction and illiteracy, there will be an intensive regime of support. No one will be ignored or left without help. But no one will get something for nothing. Help to work – and in return work for the dole.

Because a fair welfare system is fair to those who need it and fair to those who pay for it too. Our economic plan. Sound finance. Backing aspiration. No-one left behind. Investing in the future.

At the end of next week, I’m travelling to China. And when you visit a metropolis like Guangzhou or Shenzhen, it’s hard not be awed by the scale of what is happening there, by the ambition and the drive. Some say we shouldn’t even try to compete against China because it’s the sweatshop of the world. But the world is changing. And China is now also a huge market for our exports and a home of innovation and technological advance. This is a huge challenge for our country. But if we get it right, it is the key to our future prosperity.

That is what the debate about living standards is really all about. I don’t want to see other nations pushing the frontiers of science and invention and commerce and explain to my children: that used to be us; that used to be our country. I don’t want to look back and say I was part of a generation that gave up and got poorer as a result. We don’t have to be.

The other day I went to meet the people building a car that will travel at a thousand miles an hour and break the land speed record. And it’s not being built in Boston by some huge American defence company. It’s not being built in Beijing by the Chinese Government. It’s called the Bloodhound. Built in Bristol by British engineers and British apprentices and British companies.

That’s why I say we are in charge of our own destiny.

And here in this great railway hall can you imagine the nation of Isambard Kingdom Brunel being unable to summon the will to join the north and the south with a high speed railway and bring more jobs and prosperity to great cities like this? We will complete this great work of engineering in the best tradition of our country. And should we accept that this nation that mined deep for coal, and took to the cold, stormy seas to search for oil, will turn its back on new sources of energy like shale gas?

No. We absolutely should not. Should we, the country that built the first civil nuclear power station, say: ‘we are never going to build any more – leave it to others?’ Not on my watch.

Should we, the nation of Newton and Crick, here in the city of Rutherford and Turing, should we say:’Let others in the world lead mankind’s scientific endeavour. It’s all too difficult for us?’ No. Let’s mass sequence the human genome, promote genetic research and pioneer the materials of the future like graphene.

Here in Manchester, where the industrial age began, the atom was first split, and the modern computer first built, we’re going to confront that tendency that says: ‘stop the world I want to get off.’

We say: ‘Not for us the comfort of the past’. Ours is the Britain of the future.

Earlier this year, the greatest of our peacetime prime ministers died. I was there in the Cathedral at that emotional farewell. And as I looked at the coffin in front of me, draped in the Union flag, I thought to myself: for what will Margaret Thatcher best be remembered? Her strength? Her conviction? The simple fact she was the first woman prime minister.

Yes, she’ll be remembered for all of those things. But for me, what she really had was: optimism. She refused to accept that Britain was in terminal decline. She believed Britain had a great future. That British people could lead better and more prosperous lives.

And so do we.

George Osborne – 2013 Spending Review


Below is the text of the speech made relating to the 2013 Spending Review by the Chancellor of the Exchequer, George Osborne, in the House of Commons on 27th June 2013.

Mr Speaker, this Coalition came into office with a commitment to address – with firmness and resolve – one of the biggest economic crises of the post-war era. The action we have taken – together with the British people – has:

– Brought the deficit down by a third;

– Helped a record number of people into work; and

– Taken our economy back from the brink of bankruptcy.

And it allows us to say that, while recovery from such a deep recession can never be straightforward, Britain is moving out of intensive care – and from rescue to recovery.

Today, we announce the latest action to secure the recovery.

We act on behalf of every taxpayer and every future taxpayer who wants high quality public services at a price our country can afford.

We act on behalf of everyone who knows that Britain has got to live within its means.

We have applied three principles to the Spending Round I set out today.

Reform: to get more from every pound we spend.

Growth: to give Britain the education, enterprise and economic infrastructure it needs to win the global race.

And Fairness: making sure we are all in it together by ensuring those with the broadest shoulders bear the largest burden and making sure that the unfairness of the something for nothing culture in our welfare system is changed.

Mr Speaker, we have always understood that the greatest unfairness was loading debts onto our children that our generation didn’t have the courage to tackle ourselves.

We have always believed – against much opposition – that it is possible to get better public services at lower cost.

That you can cut bureaucracy.

And boost enterprise by taking burdens off the back of business.

In the face of all the evidence, the opposition to these ideas has collapsed into incoherence.

We’ve always believed that the deficit mattered; that we need to take tough decisions to deal with our debts – and the opposition to that has collapsed into incoherence too.

Today I announce the next stage of our economic plan – to turn Britain around.

Overall spending

Mr Speaker, let me start with the overall picture on spending.

Three years ago, we set out plans to make savings and reduce our borrowing.

Instead of the £157 billion the last government was borrowing, this year, we are set to borrow £108 billion pounds.

That’s £49 billion less in borrowing.

That’s virtually the entire education budget.

So we’ve made real progress, putting right what went so badly wrong.

But while we’ve been acting, the challenges from abroad have grown.

A eurozone in crisis.

Rising oil prices.

The damage from our banking crisis worse than anyone feared.

And the truth is Mr Speaker, we have to deal with the world as it is, not as we wish it to be.

So this country has to continue to make savings.

I can report that the biggest single saving we’ve made in government is the £6 billion pounds a year less we are paying to service our debts.

Bear that number in mind when you hear the opposition complaining about cuts.

Mr Speaker, the deficit has come down by a third.

Yet at over seven per cent, it remains far too high, so we must continue to take action.

Not just because it’s wrong to go on adding debts to our children’s shoulders.

But because we know from the global turbulence of the last few years that the economic risks are real.

That the recovery has to be sustained.

And if we abandon our deficit plan, Britain would be back in intensive care.

So the figures today show that until 2017-18, Total Managed Expenditure – in other words, the total amount of government spending – will continue to fall in real terms at the same average rate as it is falling today.

The task before us today is to spell out what that means for 2015-16.

Total Managed Expenditure will be £745 billion.

To put that huge sum into context, consider this: if government spending had been allowed to rise through this Parliament at the average rate of the last three decades, that total would have been £120 billion pounds higher.

This Government has taken unprecedented steps to achieve this expenditure control.

But now we need to find £11.5 billion of further savings.

And I want to pay a personal tribute to my Right Honourable Friend the Chief Secretary for the huge effort he has put into helping to deliver them.

Finding savings on this scale has not been easy.

These are difficult decisions that will affect people in our country.

But there never was an easy way to bring spending under control.


Mr Speaker, reform, growth and fairness are the principles.

Let me take each in turn – and start with reform, and the obligation we all have in this House to ensure that we get more for every pound we spend of taxpayers’ money.

With the help of my Right Honourable Friend the Minister for the Cabinet Office, we have been combing through Whitehall, driving out costs, renegotiating contracts and reducing the size of government.

Cutting money the previous government was spending on marketing and consultants, reforming government IT and negotiating harder on behalf of the taxpayer, has already saved almost £5 billion pounds.

In this Spending Round, we find a further £5 billion pounds of efficiency savings.

That’s nearly half of the total savings we need to achieve.


We’re reforming pay in the public sector.

We are holding down pay awards.

And public sector pay rises will be limited to an average of up to one per cent for 2015-16.

But the biggest reform we make on pay is to automatic progression pay.

This is the practice whereby many employees not only get a pay rise every year, but also automatically move up a pay grade every single year – regardless of performance.

Some public sector employees see annual pay rises of seven per cent.

Progression pay can at best be described as antiquated; at worst, it’s deeply unfair to other parts of the public sector who don’t get it and to the private sector who have to pay for it.

So we will end automatic progression pay in the Civil Service by 2015-16.

And we are working to remove automatic pay rises simply for time served in our schools, NHS, prisons and police.

The armed forces will be excluded from these reforms.

Keeping pay awards down and ending automatic progression pay means that, for every pound we have to save in central administration, we can better limit job losses.

I don’t want to disguise from the House that there will be further reductions in the number of people working in the public sector.

The OBR has forecast that the total number of people working for the Government will fall by a further 144,000 by 2015-16.

And I know that for those affected this is difficult.

That is the consequence of the country spending far beyond its means.

When I presented the Spending Round three years ago, I said then that around half a million posts in the public sector were forecast to have to go.

That is indeed what has happened – and we’re saving £2 billion pounds a year, with a civil service now smaller than at any time since the war.

But I also said three years ago that I was confident that job creation in the private sector would more than make up for the losses.

That prediction created more controversy than almost anything else at the time.

Instead, every job lost in the public sector has been offset by three new jobs in the private sector.

In the last year, five new jobs have been created for every job cut in the public sector.

A central argument of those who fought against our plan completely demolished by the ingenuity, enterprise and ambition of Britain’s businesses.

And I pay tribute to the hard-working people of this country who proved that pessimism wrong.

HM Treasury and Cabinet Office

Mr Speaker, in this Spending Round, the Treasury will, as you would expect, lead by example.

In 2015-16, our resource budget will be reduced by 10 per cent.

The Cabinet Office will also see its resource budget reduced by 10 per cent.

But within that we will continue to fund support for social action, including the National Citizen Service.

90,000 places will be available for young adults in the Citizen Service next year – rising to 150,000 by 2016.

It’s a fantastic programme that teaches young people about their responsibilities as well as their rights, and we are expanding it.

Local Government will have to make further savings too.

My Right Honourable Friend the Communities Secretary has set an example to all his colleagues in reducing the size of his department by 60 per cent and abolishing twelve Quangos.

He’s a model of lean government.

And he’s agreed to a further 10 per cent saving in his resource budget.

But we’re committing to over £3 billion capital investment in affordable housing and we will extend the Troubled Families Programme to reach 400,000 more vulnerable families who need extra support.

We are proving that you can save money and create more progressive government.

That is the right priority.

And here’s another of the Government’s priorities: helping families with the cost of living.

Because we know times are tough we have helped keep mortgage rates low, increased the personal allowance, cut fuel duty and frozen council tax.

That council tax freeze is due to come to an end next April.

I don’t want that to happen.

So I can tell you today, that because of the savings we’ve made, we can help families with their bills.

We will fund councils to freeze council tax for the next two years.

That’s nearly £100 pounds off the average council tax bill for families.

This bring savings for families to £600 pounds over this Parliament.

And it demonstrates our commitment to all those who want to work hard and get on.

And there’s one more thing that we can do to help with the cost of living in one part of the country.

For years, Members from the South West of England have fought on behalf of their constituents, who face exceptionally high water bills.

Nothing was done until we came to office.

Now we’ve cut those water bills by £50 a household every year until 2015.

My Honourable Friend the Member for Camborne and Redruth and others have campaigned to extend that rebate beyond 2015 – and I am happy to confirm today that we will.

Taking money out of the cost of government and putting it in the pockets of families – that’s what I mean by reform.

Local Government has already taken difficult decisions to reduce staff numbers, share services and make savings – and I want to pay tribute to Sir Merrick Cockell who has been instrumental in showing how they can do this.

We were told by the scaremongerers that savings in local government would decimate local services.

Instead, public satisfaction with local council services has gone up.

That’s because with our reforms, communities have more control over their own destiny.

That’s because we’ve devolved power and responsibility to manage budgets locally.

That’s because we’ve let councils benefit from the tax receipts that come when the local economy grows.

Today, we give more freedom – including greater flexibility over assets – and we will drive greater integration of local emergency services.

And I want to thank the Honourable Member for Bournemouth East for his fresh thinking in this area.

We’re also embarking on major reforms to the way we spend money locally through the creation of the Single Local Growth Fund that Lord Heseltine proposed.

This will be £2 billion pounds a year – that’s at least £10 billion over the next Parliament – that Local Enterprise Partnerships can bid for and the details will be set out tomorrow.

Our philosophy is simple: trust people to make their own decisions and they will usually make better ones.

But in return for these freedoms, we have to ask local government for the kind of sacrifices central government is making.

The local government resource budget will be reduced by 10 per cent in 2015-16, but when all the changes affecting local government I will set out are taken into account – including local income and other central government funding – local government spending reduces by around 2 per cent.

I set out today the block grants to the devolved administrations.

Because we have prioritised health and schools in England, this feeds through the Barnett formula to require resource savings of around just 2 per cent in Scotland, Wales and Northern Ireland.

The Scottish resource budget will be set at £25.7 billion.

And Scotland will benefit from new capital borrowing powers of almost £300 million pounds.

Being part of the UK means Scotland will see its capital spending power increase by almost 13 per cent in real terms in 2015-16.

And rightly it’s for the Scottish Parliament to decide how best to use it.

Devolution, within a United Kingdom, delivering for Scotland.

The Welsh resource budget will be £13.6 billion, and we will shortly publish our response to the Silk Commission on further devolution of taxation and borrowing.

When we do so, we will be able to say more about the impressive plans to improve the M4 in South Wales that my Honourable Friend for the Vale of Glamorgan and others have been campaigning for.

And the Northern Ireland resource budget will be £9.6 billion.

We have agreed to provide an additional £31 million in 2015-16 to help the Police Service of Northern Ireland tackle the threat posed by terrorism.

Those police officers do an incredibly brave job on our behalf.

Separately, we will make 10 per cent savings to the Scotland, Wales and Northern Ireland Offices.

Department for Culture Media and Sport

Mr Speaker, I believe the culture heritage of our nations are not just an economic asset, but have great intrinsic value.

When times are tough, they too must make a contribution to the savings this country requires.

The Department for Culture Media and Sport will make savings of 7 per cent in its resource budget, elite sports will be protected while the funding of community sports, arts and museums will be reduced by just five per cent.

But because we recognise the value of our greatest museums, galleries and English Heritage, we are giving them the much greater freedom from state control which they have long called for.

Applying our reforming principles across the Board: empowering those on the frontline who know best – what the Director of the British Museum called: “good news in a tough economic climate”.

And while we’re at it, we’ll make sure the site of the Battle of Waterloo is restored in time for the 200th anniversary, to commemorate those who died there and to celebrate a great victory of coalition forces over a discredited former regime that had impoverished millions.

Ministry of Defence

Mr Speaker, we still have the finest armed forces in the world – and we intend to keep it that way.

The first line of national defence is sound public finances and a balanced defence budget.

My Right Honourable Friend the Defence Secretary is helping to deliver both.

He and his predecessor my Right Honourable Friend for North Somerset have filled the £38 billion black hole they inherited in the finances of the Ministry of Defence.

Now we continue to ensure we get maximum value for money from what will remain, at over two per cent of our GDP, one of the largest defence budgets in the world.

The defence resource budget will be maintained in cash terms at £24 billion pounds.

The equipment budget will be £14 billion pounds and will grow by one per cent in real terms thereafter.

We will:

– further reduce the civilian workforce and their allowances;

– renegotiate more of the hopeless PFI contracts signed in the last decade; and

– overhaul the way we buy equipment.

But my Right Honourable Friend the Prime Minister has rightly been clear throughout that he is not prepared to see a reduction in Britain’s military capabilities.

This Spending Round not only protects those capabilities, but enhances them with the latest technologies.

We will not cut the number of soldiers, sailors or airmen.

We need them to defend our country.

We will give them the best kit to do that job: the new aircraft carriers, submarines, stealth fighters, destroyers and state-of-the art armoured vehicles.

And we make a major commitment to invest in cyber.

This is the new frontier of defence – and a priority for this government.

We will look after the families who have lost their loved ones, and those who have been injured protecting us, long after the wars they fought in are over.

We previously committed to fund the Military Covenant for five years.

Today, I will commit to fund the military covenant permanently.

And we will do this from the money we have collected from the Libor fines.

Those who represented the very worst values will support those who represent the very best of British values.

Our veterans will not be forgotten.

Intelligence services

The intelligence services are on the frontline too.

Silently, and often heroically, these fellow citizens protect us and our way of life.

And so we will protect them in return – with a 3.4 per cent increase in their combined resource budget.

The Foreign Office is the public face of our diplomacy.

My Right Honourable Friend the Member for Richmond is quite simply the best Foreign Secretary we’ve had in a generation.

He too has demonstrated how we can make our taxpayers’ pound go further.

While making savings in his budget, he has managed to expand our network of embassies in the emerging world, and focus his diplomats on British commercial interests.

There will be further savings in that budget of 8 per cent in 2015 but my Right Honourable Friend is still committing to strengthen our embassy network in high-growth markets, from Shanghai to Abuja.

The Foreign Office projects our values abroad.

The Home Office protects our values here in Britain.

Police and criminal justice

Police reform is a model of what we can achieve across government.

Police forces are more accountable to the public, with modern working practices, the latest equipment, and democratic oversight.

And all on a smaller budget.

What was the prediction from the opposition three years ago?

Crime would rise.

And what has happened instead?

Crime has fallen by more than10 per cent.

Thanks to the hard work of the police officers up and down this country, crime is at its lowest level for 30 years.

Net migration down by more than a third.

The Home Secretary is demonstrating that responsible budgets and reform can deliver better services for the public.

In 2015, she will work with a resource budget of £9.9 billion – a saving of 6 per cent.

The police budget will be cut by less than that.

There will be further savings in the central department.

Police forces will be encouraged to share services.

And some visa fees will go up.

But protecting Britain from the terrorist threat remains a top priority, so I can confirm that the police counter terrorism budget will not be cut at all.

For the police to do their job, they need a criminal justice system that works a lot better.

A case of common assault can take 240 days to pass through the courts, involves five separate sets of case papers, generated on three different computer systems.

In some prisons, the cost of keeping a prisoner is £40,000 pounds a year.

In others, it’s one third of that.

And the cost of legal aid per head is double the European average.

My Right Honourable Friend the Lord Chancellor is reforming all of these things.

And by doing that he’ll make savings of 10 per cent in his departmental budget.

And he’ll do this while offering, for the first time, probation services for those who have served short sentences, to help to end the revolving door of crime and reoffending.

Mr Speaker, it’s an example of the reform we’re bringing across Government.

And every step of the way, every penny saved, every programme reformed, every entitlement reduced, every difficult choice taken, has been opposed by vested interests and those who got Britain into this mess in the first place.

We will not let up.

I will not let that happen.

The reform will continue.


Mr Speaker, government spending does not alone create sustainable growth.

Enterprise does.

And the job of the state is to provide the schools, science, transport links and reliable energy that enable business to grow.

Britain was once the place where the future was invented.

From the railway to jet engine to the world wide web.

We can be that country again.

And today we set out how we get there.

And a huge amount of innovation and discovery still goes on.

But successive governments of all colours have put short term pressures over the long term needs and refused to commit to capital spending plans that match the horizons of a modern economy.

Today we change that.

We commit now to £50 billion pounds of capital investment in 2015.

From roads to railways, bridges to broadband, science to schools.

It will amount to over £300 billion of capital spending guaranteed to the end of this decade.

Today we raise our national game.

This will mean that Britain will spend on average more as a percentage of its national income on capital investment in this decade – despite the fact money is tight – than in the previous decade, when government spending was being wasted in industrial quantities.

My Right Honourable Friend the Chief Secretary will tomorrow set out the next stage of our economic infrastructure plan, with specific plans for more than £100 billion of infrastructure projects.

But this is what it means for departments.

The Department for Transport will make a 9 per cent saving in its day to day resource spending, bearing down on the running costs of Transport for London and rail administration;

But its capital budget will rise to £9.5 billion – the largest rise of any part of Government.

And we will repeat that commitment for every year to 2020.

We’re already massively expanding investment on major road schemes; but we will do more.

So we’re announcing the largest programme of investment in our roads for half a century.

We’ve already expanded our investment in the railways.

But we will do more.

So we’re committing to the largest investment in our railways since the Victorian age, and with the legislation before this House today, we should give the green light to HS2 – a huge boost to the north of England and a transformation of the economic geography of this country.

Here in London we’re digging Crossrail, the largest urban infrastructure project in Europe.

But we will do more – looking at the case for Crossrail 2 linking London from North to South.

And we’re going to give the Mayor almost £9 billion pounds of capital spending and additional financing power to the end of this decade.

Energy and the Department for Environment, Food and Rural Affairs (DEFRA)

Mr Speaker, investing in our economic infrastructure also means investing in energy.

So we’ll provide the certainty investors are crying out for in western countries.

This country is already spending more on renewables than ever before.

Now we’ll provide future strike prices for low carbon.

We’re restarting our civil nuclear programme when other countries are unable to continue theirs.

Now we provide guarantees for new nuclear.

Already our exploitation of gas in the North Sea is second to none.

Now we make the tax and planning changes which will put Britain at the forefront of exploiting shale gas.

We will provide our country with the energy of the future at a price we can afford.

And taken together this should support over £100 billion of private sector investment in our energy.

The Department for Energy and Climate Change will do this while reducing its resource budget by 8 per cent.

The Department for Environment and Rural Affairs will see a 10 per cent reduction but we will set out plans for a major commitment to new flood defences for the rest of this decade.

Again, prioritising long term capital through day-to-day cost savings – exactly the tough choice Britain should be making.

Department for Business, Innovation and Skills (BIS)

Mr Speaker, it’s not enough to have roads, power stations and flood defences.

These are just the physical infrastructure you need to compete in the 21st century.

We need the intellectual capital too.

This country needs to invent, pioneer and export around the world.

That means backing the Department for Business that helps us to do this.

And it means taking tough decisions about what we should support.

My Right Honourable Friend the Business Secretary has agreed a reduction of six per cent in the cost of the department.

That means we’re making savings to student maintenance, keeping grants, but not increasing them.

And the cost of the central department will also be cut further.

But this means that within this reduced budget we can put more money into apprenticeships, and continue with the dramatic increase in support we’ve provided to exporters through UKTI.

And we’re not going to shift medical training and research out of this department, because they’re working well where they are.

And in this department too, we can shift from day to day spending to a huge 9 per cent increase in capital investment.

This includes a huge investment in science.

Scientific discovery is first and foremost an expression of the relentless human search to know more about the world but it is also an enormous strength for a modern economy.

From synthetic biology to graphene – Britain is very good at it.

And we’re going to keep it that way.

I am committing to:

– maintain the resource budget for science at £4.6 billion;

– increase the capital budget for science in real terms to £1.1 billion; and

– maintain that real increase to the end of the decade.

Investment in science is an investment in our future.

So yes, from the next generation of jet engines, to cutting edge super computers, we say: keep inventing, keep delivering, this country will back you all the way.

But when you’ve got infrastructure and you’ve got science you still need the educated workforce to make it happen.

Because of our ongoing reforms to our universities, they are now better funded than before.

We remember the scaremongering about fees.

The claims that this would destroy social mobility, and put off students from poorer communities applying.

And what has happened since?

The highest proportion of students from the most deprived neighbourhoods applying to universities ever.

We should all welcome that.


But Mr Speaker, there’s no greater long term investment a country can make than in the education and skills of its children.

Because of the tough decisions we have taken elsewhere we have been able to invest in education and accelerate school reform.

When we took office, our country’s education system was falling behind other parts of the world.

Now, thanks to the brilliant programme of reform by my Right Honourable Friend the Education Secretary and the Schools Minister, we are once again leading the way.

So we have applied our reform principles here too: freeing schools and teachers to concentrate on teaching and turning the majority of secondary schools into academies.

In this Spending Round this momentum of reform will grow.

So the Education Department’s overall budget will increase to £53 billion and schools spending will be protected in real terms – fulfilling the pledge we made at the beginning of this parliament, for all of this parliament.

And we will transfer power – and money – from town halls and central bureaucracy to schools – so that more of this money for education is spent on education.

So while grants to councils and spending on central agencies are reduced the cash going to schools will go up.

And I can announce today that schools spending will be allocated in a fairer way than ever before.

School funding across the country is not equally distributed, but distributed on a historical basis with no logical reason.

The result is that some schools get much more than others in the same circumstances.

It’s unfair and we’re going to put it right.

Many MPs from all sides have campaigned for it.

My Honourable Friend for Worcester has been a particular champion in this Parliament.

Now the lowest funded local authorities in this country will at last receive an increase in their per pupil funding as we introduce a national funding formula to ensure that no child in any part of our country is discriminated against.

And we will consult on all the details so that we get this historic reform right.

The pupil premium we’ve introduced also makes sure we are fair to children from low income backgrounds.

It will be protected in real terms – so every poor child will have more cash spent on their future than ever before.

The capital budget will be set at £4.6 billion in 2015-16 – with over £21 billion of investment over the next Parliament.

We’ll tackle the backlog of maintenance in existing schools and we will invest in new school places.

We’ll fund twenty new studio schools and twenty new University Technical Colleges – those outstanding new vocational institutions.

Free Schools are giving parents the opportunity to aspire to a better education for their children.

Instead we must accelerate the programme – and bring more hope to more children.

Which is why I can announce that we will fund an unprecedented increase in the number of Free Schools.

We will provide for 180 great new free schools in 2015-16.

The schools budget protected; fairer funding across the nation; the pupil premium extended to more students than ever before and a transformation in the free school programme.

We will not make our children pay for the mistakes of the past.

We will give them every chance for the future.

It is the single best investment we can make for Britain.


Our education settlement is also consistent with the third and final principle of this Spending Round.


It is not possible to reduce a deficit of this size without asking all sections of the population to play their parts – but those with the broadest shoulders should bear the greatest burden.

And the Treasury distributional analysis shows that the top fifth of the population lose the most after this Spending Round.

And the independent Institute for Fiscal Studies are unequivocal that the richest ten per cent have paid the most.


So when it comes to Her Majesty’s Revenue & Customs, despite the fact that this department will see a 5 per cent reduction in its resource budget, we are committed to extra resources to tackle tax evasion.

The result is that we expect to raise over £1 billion more in tax revenues from those who try and avoid paying their fair share.

Department for International Development (DfID)

Fairness also means refusing to balance the budget on the backs of the world’s poorest.

I know not everyone believes we should fulfil our commitment to spend 0.7 per cent of our national income on development.

But I do – and I’m proud to support a Government that is the first in our history to meet our pledge and meet it not only this year, but next year and the year after.

Of course, overseas development is about more than just the DFID budget, and we comply with internationally policed rules.

But the DFID budget is the lion’s share, and it will be set at £11.1 billion in 2015-16.

Even in tough times, the decisions we make mean we keep to our commitments.


And that includes our commitment to the National Health Service – an institution which is the very embodiment of fairness in our society.

The NHS is much more than the Government’s priority, it is the people’s priority.

When we came to office the health budget was £96 billion.

In 2015-16, it will be £110 billion.

And capital spending will rise to £4.7 billion.

New medical treatments and an ageing population means the demand for NHS services is rising.

So we have not spared in also demanding reform and value for money in this service.

This will not insulate the Health Service from tough choices.

There are already 7,000 fewer managers.

And the NHS will continue to make efficiency savings.

But these savings will enable new investment in mental health, and funding for new treatments for cancers like prostate and breast cancer.

And let me respond directly to the Breast Cancer Research campaign so many have taken part in.

We will continue to back the Charity Research Support fund and look into making it easier for these organisations to benefit from gift aid.

Mr Speaker, many older people do not just use the NHS, they also use the social care system.

If we are honest they often fall between the cracks of the two systems, being pushed from pillar to post and not getting the care they should.

None of us here would want that for our parents or grandparents, and in a compassionate society no one should endure it.

It’s a failure that costs billions.

Britain can do better.

In the 2010 Spending Review, we said that the NHS would make available around £1 billion a year to support the health needs of people in social care.

It worked, and saved hundreds of millions in the process.

Last year, these improvements meant almost 50,000 fewer bed days were lost to the NHS.

So today, I can announce that I will be bringing together a significant chunk of the health and social care budgets.

I want to make sure everyone gets a properly joined up service where they won’t have to worry if that service is coming from the NHS or the local council.

Let’s stop the tragedy of people being dropped in A&E on a Friday night to spend the weekend in hospital because we can’t look after them properly in social care.

By 2015-16, over £3 billion will be spent on services that are commissioned jointly and seamlessly by the local NHS and local councils working together.

It’s a huge and historic commitment of resources to social care, tied to real reform on the ground, to help end the scandal of older people trapped in hospitals because they cannot get a social care bed.

This will help relieve pressures on Accident & Emergency.

It will help local government deliver on its obligations.

And it will save the NHS at least a billion pounds.

Integrated health and social care: no longer a vague aspiration but concrete reality, transforming the way we look after people who need our care most.


So Mr Speaker, these are the three principles that guide the Spending Round: reform; growth and fairness.

Nowhere could these principles be clearer than in our approach to welfare.

Two groups of people need to be satisfied with our welfare system.

Those who need it – who are old, who are vulnerable, who are disabled, or have lost their job and who we as a compassionate society want to support.

And there’s a second group.

The people who pay for this welfare system: who go out to work, who pay their taxes and expect it to be fair on them too.

So we’ve taken huge steps to reform welfare.

Changing working age benefits with Universal Credit, so work always pays;

Removing child benefit from the better off;

Capping benefits so no family out of work gets more than the average family gets in work.

And we’ve making sure benefit payments don’t rise faster than wages.

The steps we’ve taken will save £18 billion a year.

Now we propose to do three further welfare reforms.

First, as I said in the Budget, we are going to introduce a new Welfare Cap to control the overall costs of the benefits bill.

We’ve already capped the benefits of individuals – now we cap the system as a whole.

Under that system we inherited, welfare spending was put in a category called Annually Managed Expenditure.

But the problem was it wasn’t managed at all.

The cost of welfare went up by a staggering 50 per cent – even before the crash.

Our Welfare Cap will stop that happening again.

The Cap will be set each year at the Budget for four years.

It will apply from April 2015.

It will reflect forecast inflation, but it will be set in cash terms.

In future, when a government looks set to breach the Cap because it is failing to control welfare, the OBR will issue a public warning.

The government will then be forced to take action to cut welfare costs or publicly breach the Cap.

We’ll exclude a small number of the most cyclical benefits that directly rise and fall with the unemployment rate – to preserve the automatic stabilisers.

Housing benefit, tax credits, disability benefits, and pensioner benefits will all be included.

But the State Pension will not.

Mr Speaker, I have had representations that we should include the basic state pension in the Welfare Cap.

That would mean that a future government could offset a rise in working age benefits by cutting the pensions of older people.

That penalises those who’ve worked hard all their lives.

Cutting pensions to pay for working age benefits is a choice this government is certainly not prepared to make.

It is unfair.

We won’t do it.

And we reject those representations.

The new Welfare Cap is proof that Britain is serious about living within its means.

Controlling spending.

Protecting the taxpayer.

Fundamentally fair.

Today, we’re introducing a limit on the nation’s Credit Card.

The principles enshrined in the Cap apply to our second reform.

We will act to ensure that we will stop the cost of paying the Winter Fuel Payments made to those who live abroad rising in a way that no one ever intended.

EU law now says that people living in the European Economic Area can claim Winter Fuel Payments from us even if they didn’t get it before they left the UK.

Paying out even more money to people from all nationalities who may have worked in this country years ago but no longer live here is not a fair use of the nation’s cash.

So from the autumn of 2015, we will link the Winter Fuel Payment to a temperature test.

People in hot countries will no longer get it.

It is, after all, a payment for winter fuel.

The third welfare reform I announce today is about making sure we do everything to help people get into work.

My Right Honourable Friend the Work and Pensions Secretary changed the national debate about welfare and he has comprehensively won the argument.

He has committed to finding a further 9.5 per cent savings in his department’s running costs.

That will require a difficult drive for efficiency, and a hard-headed assessment of under-performing programmes.

But welfare reform is about much more than saving money – vital though that is.

It’s about reducing dependency and changing people’s lives for the better.

I am determined to go further to reduce worklessness with all its social consequences.

Where is the fairness in condemning people to a life on benefits because the system won’t help them get back into work?

Today we’re introducing Upfront Work Search.

We’re going to make sure people turn up with a CV, register for online job search, and start looking for work – and only then will they get their benefits.

Thanks to this government, lone parents out of work can now get free childcare for their three and four year olds.

So it is reasonable to ask that they start regularly attending jobcentres and preparing to return to work.

There are further changes we announce today.

Half of all jobseekers need more help looking for work, so we’ll require them to come to the jobcentre every week rather than once a fortnight.

We’re going to give people more time with jobcentre advisors and proper progress reviews every three months.

And we’re going to introduce a new seven day wait before people can claim benefits.

Those first few days should be spent looking for work, not looking to sign on.

We’re doing these things because we know they help people stay off benefits and help those on benefits get back into work faster.

And here’s a further change.

From now on, if claimants don’t speak English, they will have to attend language courses until they do.

This is a reasonable requirement in this country.

It will help people find work.

But if you’re not prepared to learn English, your benefits will be cut.

Taken together, this new contract with people on benefits will save over £350 million pounds a year, and all that money will enable us to afford extra support to help people get into work.

Help to work;

Incentives to work;

And an expectation that people should do everything they can to find work.

That’s fair for people out of work;

And fair for those in work who pay for them.

Together, these reforms bring the total additional welfare savings in 2015 up to £4 billion.

Mr Speaker, step by step, this reforming Government is making sure Britain lives within its means.

The decisions we take today are not easy – and these are difficult times.

But with this statement we make more progress towards:

– an economy that prospers,

– a state we can afford,

– a deficit coming down; and

– a Britain on the rise.

And I commend this economic plan to the House.

George Osborne – 2013 Mansion House Speech


Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, on the 19th June 2013 at the Mansion House in London.

My Lord Mayor, Ladies and Gentlemen.

Tonight marks the end of an era.

Mervyn King is leaving the Bank of England in two weeks time.

He has attended 194 Monetary Policy Committee meetings;

He has appeared 102 times before Parliament;

He has attended 37 gatherings of the IMF;

And eaten his way through 15 of these annual dinners at the Mansion House,

And Lord Mayor, on behalf of your guests, I thank you and the City of London for your wonderful hospitality tonight.

Mervyn King was appointed during the premiership of the late Margaret Thatcher as one of the Bank’s directors in 1990.

And since then, first as Deputy Governor, and then Governor, Mervyn, you have helped to lead our country through an extraordinary period of its economic history.

More than that, you have been the original thinker who has taken Britain on the journey that began with inflation targeting, to monetary independence, and now to the far-reaching reforms to prudential regulation and financial oversight.

I can think of few people who have done more to shape our public discourse in the last thirty years.

And you have done so with integrity, intelligence and patriotism.

And also with a seemingly endless supply of sporting metaphors.

So here we go: you had to play on a sticky wicket, but you leave with our economy now emerging from the Ashes. When it comes to leaving presents, you’re a difficult man to get something for.

There’s not much point getting you the traditional gold watch when you already work on top of £200 billion worth of the stuff.

And as you already know, the Chief Secretary, or as you call him, the left arm opening bowler on the Governor’s Eleven, has already confirmed that the Government will support your charity Chance to Shine, matching the £25 million it has raised to help introduce our national game back into our schools.

And I’m delighted to be able to tell everyone here something you’ve known about for a few days.

It’s just been announced by Downing Street that the Prime Minister has recommended to Her Majesty the Queen that the Governor be raised to the peerage, and Her Majesty has been graciously pleased to approve that. Lord King, we here today salute this worthy honour and thank you for your life of service to your country.

And we thank Barbara, Lady King, for being such a support at your side.

Lord King is a hard act to follow.

But Mark Carney is a worthy successor.

Mark, if you’re watching this on TV, just so you know, this is how we British eat every night.

Mark has an outstanding record at the Bank of Canada, great economic expertise, he’s at the centre of global financial regulation and has firsthand experience of the private sector.

I believe he’s quite simply the best qualified person in the world for the difficult job that lies ahead.

And isn’t it a credit to our country that we accept without question that someone who is not British but who is the best in the world, can lead our central Bank? We all wish Mark Carney every success in his new role.

He arrives at an important moment for our economy.

The situation in the Eurozone remains fragile.

Some of the data from the emerging economies has underwhelmed.

And Britain remains encumbered by debts built up over many years.

Recent volatility in financial markets is a reminder that no recovery from such a deep and damaging global recession is going to be straight-forward.

But, equally, the economic news here in Britain has been better in recent months. The economy is growing.

Record numbers are in work.

Unemployment is falling.

And the surveys of confidence and future activity are stronger.

Let me say tonight: the British economy is healing.

We are moving from rescue to recovery.

But while Britain has left intensive care, we still need to secure the recovery – and make sure we continue to treat the ailments that brought us low in the first place.

Full recovery won’t be easy but I won’t let up in my determination to put right what went so badly wrong.

A public sector that was too big, paid for by a private sector that was too small.

An unbalanced economy that was too reliant on too few industries in too few parts of the country.

A business community that was not connected enough to new, fast growing parts of our globe and not helped by an uncompetitive tax system.

And a banking system that was badly regulated, ran risks it didn’t understand and had to be bailed out at huge cost by the taxpayer.

Addressing these more deep seated problems, as well as the short term challenges, must be central to our economic plan.

These are the elements of that economic plan.

First, active monetary policy to support demand and help keep lending rates low.

That is anchored by a tough, credible fiscal policy that bears down on our excessive deficit, the second element of our plan.

Finally, far-reaching structural reform to improve the supply potential of our economy – the only lasting way to raise our nation’s living standards and succeed in the global race.

And that must include structural reform to parts of our banking system.

We want our banks to support our national economy, not be supported by our national economy.

Tonight, I’d like to say a little about each component of the economic plan.

About how they will develop as we move from rescue to recovery.

Let’s start with active monetary policy.

The Bank of England has had the difficult task of balancing the risks from inflation with the need to support the economy.

I believe they have largely got that balance right.

Innovations in monetary policy have included the Funding for Lending scheme, which Mervyn and I both launched at this Mansion House dinner a year ago.

As a result, bank funding costs have fallen quite dramatically.

But Funding for Lending must still do more for small businesses, so we have extended the scheme and sharply increased the incentives for new lending to SMEs.

Monetary activism also means using the credibility of the Government’s balance sheet to fix other parts of the impaired financial system, like mortgage finance.

Mortgage rates have fallen, again thanks to Funding for Lending.

But the average deposit required for a first time buyer is a staggering four fifths of annual income.

I suspect almost everyone in this room owns their own home.

But I ask this: how many of you could have afforded the kind of deposit on your first house that many young families are expected to provide today?

Very few of you.

Let’s be clear: the market is not functioning normally.

And that’s why we’ve introduced Help to Buy.

I want to make sure an entire generation doesn’t miss out on the reasonable aspiration to buy a home. The equity loan component has been operating since April and in the words of the House Builders Federation, it is already “an unqualified success”.

The mortgage component will begin early next year.

And we have reformed our planning laws to allow for a sensible increase in home building.

To guarantee that Help to Buy is temporary, the Financial Policy Committee of the Bank of England will have to give its consent before it can be extended beyond its three year life.

And this brings me to the important question of how monetary policy should balance the ongoing need for stimulus with emerging signs of recovery.

Each step along the path must, without question, be for the judgment of independent central banks including our own. The sharp jumps in bond yields we’ve seen in too many countries in recent years have been a sign of confidence departing.

But if the recovery gathers strength then a steady rise in bond yields across the largest developed countries will be a sign of confidence returning.

The recent turbulence in financial markets has emphasised the vital importance of clear communication.

There is a risk that poor communication could lead to stimulus being inadvertently withdrawn too soon.

More clarity about the future path of interest rates could help keep financial markets more stable.

So this year I’ve given the Bank of England a new remit that takes into account innovations in monetary policy and asked the Monetary Policy Committee to report back in August on the use of forward guidance and intermediate thresholds.

I want to make sure the new Governor and his Committee have all the tools they need at their disposal to maintain price stability and secure the recovery.

Active monetary policy is a key part of our economic plan.

But it has to be anchored by credible fiscal policy.

That remains as important in the recovery as it was in the rescue.

Three years ago, at my first speech to this dinner, I said we would have to take difficult decisions over a number of years to reduce our country’s dangerously-high budget deficit. This was very controversial at the time.

Many opposed our plan to cut spending and increase revenue.

We were told that the private sector would never replace the public sector jobs lost.

Instead, private sector job creation has offset public sector losses more than three times over.

We were told crime would rise, education standards would fall and hospital waiting times would increase.

In all those cases the exact reverse has happened.

Every single step we have taken, the money saved, every programme cut, every welfare benefit reformed, has been fought against by a noisy combination of vested interests.

Those opponents are now losing the argument. But listen carefully and they still assert that if we borrow more we will borrow less.

The evidence doesn’t support it and the public doesn’t agree.

Look at the progress we have made.

The budget deficit is down by a third.

The structural deficit – the part that remains even when the economy fully recovers – has fallen by more here than in any other G7 country.

But at over 7 per cent, our deficit remains too high and endangers our recovery.

We can’t afford to let up – and you have my commitment – we won’t.

In a week’s time, I will set out the government’s spending plans for the year 2015-16.

With tough negotiating by the Chief Secretary, those plans are almost complete.

There are more difficult decisions.

There have to be when the country is living way beyond its means.

But we will not shy away from taking them.

And next week we are going to prioritise spending on the economic infrastructure of tomorrow – in the roads and railways, the schooling and the science that will help Britain compete and succeed.

These are part of our structural reforms – and the third component of our economic plan.

Thanks to long term policy decisions we’ve taken, Britain is now ranked in a recent global index as the number one place in the world to invest in infrastructure.

Our goods exports to India are up 60 per cent; to China they’ve nearly doubled.

When other countries are retreating from their civil nuclear programmes, we are restarting ours.

Our G8 Summit started with the launch of trade talks between the US and Europe that could lead to the largest bilateral trade deal in history.

And strong, profitable and safe financial services are an integral part of the reforms we’re bringing to Britain.

In the City of London, you provide Britain with a great global asset.

I couldn’t be clearer.

I want this City to grow as the pre-eminent centre of international finance.

So I’ve worked hard with the Chinese government to get the first renminbi bonds issued here.

With my Indian opposite number, we’ve just agreed to create new debt funds here for Indian infrastructure.

And when the World Islamic Economic Forum meets for the first time this year outside the Muslim world – they’re meeting here in this city.

We’ve launched a special drive to bring more insurance and reinsurance business here to Britain.

And I can tell you tonight that Santander has chosen London as the base of its worldwide investment management business.

The very landscape of our city, with the Gherkin, the Walkie Talkie and the Cheese Grater – like some giant’s kitchen table – is a visible sign of growth. While underground Crossrail continues to burrow through the City.

We’re fighting for better regulation from Europe.

Just this week we secured a big step forward by getting the derivative exchanges market opened up to competition.

But while some European countries talk of introducing damaging financial transaction taxes, here in Britain I’m abolishing a financial transaction tax – getting rid of stamp duty on AIM-listed shares.

And even though it’s been controversial, I reduced the top rate of income tax.


Because it was the worst of both worlds: a tax rate that discouraged enterprise but didn’t raise more money from the best off.

So whether its legal services, accountancy, insurance, hedge funds or shipping, we stand ready to promote our world beating financial services.

And those world-beating services include our global banks.

They need to be part of our successful future.

To do that, we must resolve what I described two years ago at this dinner as the ‘British Dilemma’.

How can we remain the international centre for banking, while protecting taxpayers from the catastrophic costs when banks fail?

The financial crisis has cost Britain billions in lost economic output.

People are entitled to feel angry – at the regulators and government that failed them; and at the financial institutions whose reckless behavior brought us to the brink of bankruptcy.

But anger can be a destructive, vindictive thing – it can cost this country jobs and prosperity.

We’re talking here about an industry that employs one million of our citizens.

So we need to channel legitimate anger into a positive force for change.

That is what this Government has sought to do over the last three years.

We’ve changed entirely the failed system of financial regulation, so that from this April we have the Bank of England exercising its judgements as the prudential regulator of our financial system and a monitor of its emerging risks – a role that should never have been taken away from it.

Paul Tucker has done an incredible job in overseeing these historic reforms.

He has announced he’s stepping down from the Bank.

Paul, we thank you for years of service, we wish you well with your next challenge and I’m sure we won’t be seeing the last of you in the public sphere.

It is not just the system of regulation that has changed fundamentally.

This year the Government is legislating in Parliament to ring-fence our retail banks from their investment banking arms. In future, if someone doing my job faces that dreadful weekend decision about using huge amounts of taxpayer’s money to bail out a bank, they will have real choices my predecessor was denied.

Now we need to make further changes. Today the Parliamentary Commission on Banking has reported.

I want to thank Andrew Tyrie – here tonight – and his distinguished colleagues, for an intensive and thorough piece of work.

I think the decision to go for a quick Parliamentary inquiry, rather than a lengthy public inquiry, has been vindicated.

The Commission have rightly not spared in their criticism where they feel some in the industry have done wrong.

But they’ve also come forward with practical solutions that enhance the personal responsibility for practitioners and the professional judgment of regulators.

It’s a very impressive Report.

The Commission’s central judgment is absolutely right.

As they put it: “High standards in banking should not be a substitute for global success. On the contrary, they can be a stimulus to it”.

There’s a lot of detail here – I will respond more fully next month.

We’ve already supported the recommendations on new criminal sanctions and cancelling bonuses where banks are bailed out.

And let me be clear: where legislation is needed, the Banking Bill currently before Parliament will be amended to ensure the recommendations can be quickly enacted. The Commission also supports the creation of new banks on our high street.

I strongly agree.

We’ve made it easier this year to start and grow new banks.

Britain’s banking scene is changing.

Northern Rock has been returned to the private sector.

Lloyds is launching TSB back to the high street this summer, and preparing to float this business as a true new “challenger” bank.

RBS will follow suit.

Today, the Office of Fair Trading has announced that it will bring forward its market review of small business banking – to make sure our small firms get a fair, competitive deal from the banks.

As part of this work, I have asked the OFT to review the impact that new challenger banks created by Lloyds and RBS will have on strengthening competition in small business banking, and to identify what more can be done.

That begs a question about the proverbial elephant in the room for Britain’s financial services – the future of the taxpayer’s stakes in two of our largest banks, RBS and Lloyds.

Our objectives for our shareholdings in Lloyds and RBS are exactly the same.

We want to maximize the ability of these important banks to support the British economy.

We want to get the best value for money for the taxpayer.

And we want to do what we can to return them to private ownership.

In achieving these three objectives, let’s be clear about where responsibility lies.

RBS and Lloyds are led by their managements and their Boards in the interests of all shareholders, including the taxpayer.

It would be wrong for politicians to get into the day-to-day business of determining who they should lend to, and the details of their strategy.

UK Financial Investments plays an important role in making sure the Government’s shareholdings are managed on an arms length, commercial basis.

So one area where I disagree with the Banking Commission is on their recommendation that UKFI be abolished.

But equally, as Chancellor, I have a responsibility to represent the interests of taxpayers.

The British public own 81 per cent of RBS and 39 per cent of Lloyds.

They were forced to give over £65 billion of the money they worked hard to earn to bail out these banks.

Of course the taxpayer is going to have a clear interest in the direction of each bank.

It would be a dereliction of my duty not to represent that interest.

In the case of RBS, the bank lends more to small and medium businesses in this country than anyone else.

There’s no doubt that the bank has come a long way since the perilous situation it faced in 2008.

Stephen Hester has done a very good rescue job in shrinking both the non-core assets and the investment banking operations.

He provided leadership in a time of crisis – and deserves our appreciation.

But while the bank is healing, let’s be frank: it has not healed as quickly as we all hoped.

It has not done as much to support the recovery as any of us would have liked.

And we as taxpayers are still a long way from getting our money back.

So the following needs to happen.

The plan set out, independently, by the board of the bank needs to be pursued aggressively. Under this, RBS will focus on its core UK business, serving its personal, SME and corporate customers.

It will not aspire to be a global full-service investment bank, and the ongoing reduction of its markets business will continue, as it needs to

And UKFI have made it clear that the Government has no strategic interest in RBS owning one of the largest regional banks in the US – and the method of exit from Citizens must achieve maximum value for all shareholders.

All this meets both the first objective of maximizing the ability of RBS to support the economy and our second objective to get the best value for money for the taxpayer.

What about the third?

The return to the private sector.

I don’t want a quick sale of our RBS shares. I want the right sale – the right sale for the British people.

I will only sell our stake in RBS when we feel the bank is fully able to support our economy and when we get good value for you, the taxpayer.

In our judgment, when it comes to RBS that moment is some way off.

So what more can we do to help RBS recover?

There’s no doubt that, despite all the progress of recent years, RBS remains weighed down by too many poor assets – loans issued in the boom that have gone bad and may take a long time to improve.

The question is – do we remove those poor assets from RBS, and set up what’s known as a Bad Bank.

This would then enable RBS to focus on the good parts of its business – supporting the British economy and maximising the benefits for the taxpayer.

With hindsight, I think splitting RBS into a Good Bank and a Bad Bank was probably what should have happened in 2008. That is with hindsight.

I wasn’t in office.

I didn’t suggest it in opposition.

And I’m not criticizing my predecessor who had to act quickly in a desperate situation.

The question before us now is not about what happened then, but what should happened now.

Is taking bad assets that are still weighing down RBS out of the bank altogether the right answer today?

Opinion is divided – some say the disruption isn’t worth it; others that it’s the only way we’ll really restore our banking system to health.

I’ve always believed the answer for Britain is to confront the difficult decisions, not wish them away.

So I can tell you today that we will urgently investigate the case for taking the bad assets – those mistakes of the past – out of RBS.

We will judge whether this will allow the Bank to focus on its future supporting the British economy.

We will see whether its right for Britain to, in effect, see RBS broken up.

The review will be swift.

It will be conducted by the Treasury with external professional support.

We’ll look at a broad range of RBS’s assets, but particularly assets in Ulster Bank and UK commercial real estate.

We’re not prepared to put more taxpayer capital into RBS as part of this process.

We will establish a Bad Bank if it meets our three objectives: if it supports the British economy; if it’s in the interests of taxpayers – and if it accelerates the return to private ownership.

But if the review reveals that it would not achieve these things, then we won’t do it.

We want to get on with this, so we’ll conclude the review and make a decision this autumn.

Once the decision is taken, and we’re confident that RBS is focused on being that UK corporate and retail bank it needs to be, then the Government is ready to discuss how, for a fair price, we get rid of the Dividend Access Share.

That would be a milestone on the road back to full private ownership for RBS, a destination we all want to reach.

For Lloyds, the three objectives of taxpayer value, maximising support for the economy and restoring private ownership are exactly the same – but we’re much closer to achieving those objectives.

To be fair, Lloyds was, all along, a much simpler bank.

Now its core retail and commercial business generate healthy returns, and there’s no trading arm. Thanks to Antonio Horta-Osorio and his team Lloyds has a clear strategy and is improving its capital position, as it was asked to do.

Lloyds is in a good position.

Investor interest is growing.

And shares are already trading at around the price where selling would reduce the national debt.

That’s something we all want to see.

I can announce that we are actively considering options for share sales in Lloyds.

Of course, we will only proceed if we get value for the taxpayer.

And we have no pre-fixed timescale or method of disposal.

For the first block of government shares, an institutional placement is likely to be the most effective way of managing risk and getting value.

So five years on from the financial crisis, we can now take the first steps to returning Lloyds to the private sector where it belongs.

And for later sales of shares, we will consider a retail offering to the general public.

My Lord Mayor, nothing better signals Britain’s move from rescue to recovery than the fact that we can start to plan for our exit from government share ownership of our biggest banks.

And nothing would do more to help us, as a country, draw a line under the mistakes of the past and look to a brighter future. We’ve come a long way these past few years. Reducing our deficit.

Building up the private sector.

Making our country more competitive.

Creating a banking system that supports the British economy rather than being supported by it.

Enhancing Britain’s global leadership in financial services.

This is our economic plan.

It is working.

The Government is determined in its task, and I thank you for helping us see it through.

George Osborne – 2013 Speech on Benefits


Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, on the subject of welfare and benefits made on 2nd April 2013.

Good afternoon, thank you for inviting me to be here at Morrison’s today.

One of your company slogans – “every penny matters” – is a very fitting catchphrase for what I want to talk about.

I want to talk about the major changes we’re making to our tax and welfare system this month.

Changes that are all about making sure that we use every penny we can to back hard working people who want to get on in life.

Changes that are all about backing people like you.

For too long, we’ve had a system where people who did the right thing – who get up in the morning and work hard – felt penalised for it, while people who did the wrong thing got rewarded for it.

That’s wrong.

So this month we’re going to put things right.

This month, 9 out of 10 working households will be better off as a result of the changes we are making.

This month we will make work pay.

Now, those who defend the current benefit system are going to complain loudly.

These vested interests always complain, with depressingly predictable outrage, about every change to a system which is failing.

I want to take the argument to them.

Because defending every line item of welfare spending isn’t credible in the current economic environment.

Because defending benefits that trap people in poverty and penalise work is defending the indefensible.

The benefit system is broken; it penalises those who try to do the right thing; and the British people badly want it fixed.

We agree – and those who don’t are on the wrong side of the British public.

But this isn’t just an argument about whether these changes are fair or not.

It’s really about the future of our country.

When I think about the future, I think about the kind of country my kids and your kids are going to grow up in.

The world is going to be quite a different place.

We’re facing more and more competition from vast new economies like China and India.

There are quite literally billions of people who are joining the world economy.

That’s human progress.

If we’re not careful, Britain risks being out-worked, out-competed and out-smarted by those hungry for a better life.

Fortunately, this country has a lot of strengths. British people are some of the hardest workers in Europe.

Our companies produce some of the best inventions in the world.

But we aren’t going be able to compete if politicians waste your money or we rack up debts we can’t afford to pay off.

When I became Chancellor, we were forecast to have the biggest deficit of any major economy in the world.

The deficit is the gap between what the Government spends and what it raises – and in Britain that gap got bigger than almost anywhere else.

By taking hard decisions in the last few years to save money, this government has cut that deficit by a third.

But it’s still too high.

Because of that deficit six pence in every pound of tax you pay is going to be wasted.

It will have to be spent not even on paying off the national debt – but just servicing the interest on that debt.

You spend hours here working hard.

You pay your taxes out of your earnings.

I want every penny of that money to be spent on the things that matter to you and your family: a better NHS, good schools and policing, strong defence, and decent pensions.

Not on paying the interest bills on the national debt.

Some politicians seem to think we can just wish away Britain’s debt problem.

They want to take the cowardly way out, let the debt rise and rise and just dump the costs onto our children to pay off.

I don’t think that would be fair.

And I don’t think we’d get away with it.

The interest charges would soar.

Interest rates would rocket.

People with mortgages would struggle.

Businesses with loans would go bust.

Jobs would be lost.

So we are making changes to our tax and benefit system so this country can live within its means and compete in the global race the Prime Minister has spoken of.

That’s what this speech is about – that’s what the changes we are making this month are about.

It’s about making the country fairer – and protecting our future.

And there are three things we are doing.

First, reforming the welfare system so it’s fair on people like you who pay for it, and fair on people who need help to look for work.

Second, creating jobs in our economy.

And third making sure when people are in work, they can keep more of what you earn.

Let me take each in turn.

Let’s start with the welfare system.

I think people in this country understand that the welfare system needs to change.

In 2010 alone, payments to working age families cost £90 billion.

That means about one in every seven pounds of tax that working people like you pay was going on working age benefits.

To put that into perspective – that’s more than we spend on our schools.

That’s one reason why we’ve got such a big deficit.

But the system was not just unaffordable.

It was fundamentally broken.

The system became so complicated, and benefits so generous, that people found they were better off on the dole than they were in work.

And the figures show what happened as a result.

Even at the end of the economic boom in 2008 there were more than four million working age people on out of work benefits.

And here’s the saddest fact of all.

We had nearly two million of our children living in families where no-one worked – the highest proportion of any country in the European Union, including countries much poorer than us.

That’s a worry for the future.

Once it becomes the norm in an area not to work, welfare dependency can become deeply entrenched, handed on from one generation to the next.

And governments of all colours let too many unemployed people get parked on disability benefits, and told they’d never work again.


Because people on disability benefits don’t get counted in unemployment figures that could embarrass politicians.

It was quick fix politics of the worst kind – and the people who lost out were you, hard working taxpayers who had to pay for all this…

…and those on disability benefits who could have worked but were denied the opportunity to do so.

What this government is trying to do is put things right.

We’re trying to make the system fair on people like you, who get up, go to work, and expect your taxes to be spent wisely.

And we’re trying to restore hope in those communities who have been let down by generations of politicians by getting them back into work.

So our reforms have one simple principle at their heart – making sure people are better off in work than on benefits.

Take Housing Benefit.

When I took this job, I discovered there were some people who got £100,000 pounds a year in Housing Benefit.

£100,000 a year in benefit.

No family on an ordinary income could ever dream of affording a rent like that.

And you can imagine what that does for someone’s incentives to get a better paid job – because almost everything extra they earn will just be taken away from them in lower housing benefit.

We can’t have a system that penalises you for going out to work and wanting to get on.

So we’ve put a stop to those staggering payments and put a cap on housing benefit.

We’ve made sure that you can’t get more than £400 pounds of Housing Benefit a week in this country.

That’s still a pretty generous amount.

And yet when we did the pressure groups and welfare lobby attacked it as not enough.

They still say that people should get more than £400 a week housing benefit.

They don’t seem to realise that the money to pay these benefits comes from people who work hard, who pay their taxes, and many of whom can’t afford £400 a week in rent.

This week, we’re bringing in further common sense changes to benefits.

We’re making savings to council tax benefit – that’s a benefit that went up by 50% under the last Government.

And we’re also changing the housing benefit rules.

We’re saying that if you continue to live in a council house that’s bigger than you need, you’ll need to make a contribution towards the extra bedroom.

We’ve got 1.8 million families waiting for social housing, and yet there are a million spare rooms across the sector.

If you live in private rented accommodation and receive Housing Benefit – these rules already apply – and have done for nearly 20 years.

You don’t get money for a spare room.

Treating both groups of people the same regardless of which landlord owns their house is only fair.

Another change is taking place too.

Next week, on April 8th, we’re also making sure that benefits, in the economic jargon, are only uprated by one percent.

What this means in reality is that benefits won’t increase more than many people’s wages.

In these difficult economic times, many people in jobs haven’t seen their incomes rise by much, if at all.

Some have even seen it cut.

And we’re also having to impose a one percent salary increase on people in the public services like nurses and teachers.

So it’s only fair and right that the same rules apply to people on benefits.

Fair to you, people in work.

There’s another, even more significant change we’re making this month.

Families out of work can claim various different benefits – and they can end up with an income far higher than an average working family.

Why on earth would someone go out to work if that’s the case?

So this April we’re introducing the new Benefit Cap.

The Benefit Cap has a very simple principle at its heart: no family that’s out of work should receive more in total benefits than the average family gets in work.

The cap will be set at £500 pounds for a couple, or someone with children, and £350 a week for a single adult.

That’s £26,000 pounds a year for a family, or £18,000 for a single adult.

Most working people think frankly that’s pretty high – yet still the pressure groups complain it’s not high enough.

The opposition oppose any cap at all.

Who here, who pays their taxes, and pays for the benefit bills of others thinks £500 a week in benefits is too little.

Who here, who goes to work and sends money to the government, thinks families that aren’t working should get more than £26,000 a year.


Those who campaign against a cap on benefits for families who aren’t working are completely out of touch with how the millions of working families, who pay the taxes to fund these benefits, feel about this.

We are on your side.

The new Benefit Cap will be introduced in parts of London from 15th April – before we roll it out across the country this summer.

With all our welfare changes, we’re simply asking people on benefits to make some of the same choices working families have to make every day.

To live in a less expensive house.

To live in a house without a spare bedroom unless they can afford it.

To get by on the average family income.

These are the realities of life for working people.

They should be the reality for everyone else too.

And we’re going to go further – replacing all those complicated benefits and tax credits with a single, simple Universal Credit which ensures you’re always better off working.

We’re trialling it in the North West of England this month – to make sure it’s ready for national roll out later this year.

Be in no doubt: reforming the welfare system is a big job, and it’s hard.

But I’m proud of what we’re doing to restore some common sense and control on costs.

In recent days we have heard a lot of, frankly, ill-informed rubbish about these welfare reforms.

Some have said it’s the end of the welfare state.

That is shrill, headline-seeking nonsense.

I will tell you what is true.

Taxpayers don’t think the welfare state works properly anymore.

When did this start to happen?

When we created a system that encouraged people to stay out of work rather than find a job.

Our reforms are returning to welfare to its most fundamental principles – always helping the most vulnerable, but giving people ladders out of poverty.

And the politicians who should have to explain themselves are those who have given up on trying to get people working again.

In reality there’s nothing “kind” about parking people who could work on benefits. There’s nothing fair about a something for nothing culture.

The pundits and politicians who are spending this week firing off letters to newspapers, or touring the television studios, are missing what people actually want.

People don’t want a welfare system that keeps them in poverty.

Most people on benefits want to work.

They want a welfare system that helps them into work, that lifts them up, that gives them pride, self-worth and dignity.

That’s why we’re building a benefits system that means you’re always better off in work.

And that’s why we’re building an economy that creates real, lasting jobs.

For it wasn’t just our benefits system that was broken.

Our economy broke too.

Fixing that economy has been a hard, difficult process.

And yes, it’s taken longer than anyone hoped.

But we’re getting there.

We’re fundamentally rebalancing our economy, away from debt, away from the public sector, away from relying on a select few industries like the banks, away from being dependent on the City of London…

…to an economy where prosperity and businesses are shared across the country; an economy that invests in the industries of the future; an economy which makes things again and where there are good, well paid jobs not just for this generation – but for our children too, in that competitive world I told you about.

And we’re delivering results.

Over one million private sector jobs have been created in our economy over the last three years.

The rate of employment has risen faster here than in the US and three times as fast as in Germany.

Last year, more businesses started in this country than in any other year before.

And in industries like car manufacturing, Britain is now back to being a world leader.

So as well as all the benefit changes this April we’re also doing even more this month to make sure Britain competes and thrives and jobs are created here instead overseas.

Yesterday, corporation tax was cut to 23 percent – that means it’s lower here than in the other largest economies in the world.

And we will get it lower still, to 20%.

This week we are also introducing new research and development tax breaks so companies can invest in the high technology and intellectual property that are the future of the British economy.

And we’ll be abolishing the jobs taxes altogether on many hundreds of thousands of our small businesses in the coming year.

To help people who work in construction, and support families who want to own their own home but can’t afford the deposits these days, we’re launching our new Help to Buy scheme this week.

And here’s another change we’re making.

On Saturday, the top rate of tax will be reduced from 50p to 45p.

I know this is controversial – but if we’re serious about Britain succeeding in the world, it’s an economic essential.

In a modern global economy, where people can move anywhere in the world, we cannot have a top rate of tax that discourages people from living here, setting up businesses here, investing here, creating jobs here.

If you don’t believe me, ask France.

They’re planning to whack up their top rate of tax – and you know what’s happening?

Job creation is down as people are leaving the country.

The opposite is happening here because we are welcoming entrepreneurs and wealth creators – and the jobs they bring with them.

Let’s be clear.

The 50p tax was a big tax con.

The Labour Government brought it in just weeks before they were kicked out.

They pretended it would raise more money from the rich.

But when the 50p rate was introduced, the amount collected in income tax fell by billions of pounds as the wealthy paid less.

So we got the worst of both worlds: a tax rate that discouraged enterprise and didn’t raise more money from the rich.

You can’t pay down the deficit with that.

You can’t fund the health service with money that never arrives.

Giving Britain a sensible top rate of tax may not be a popular decision – but my job is not to take decisions that please everyone.

My job is to take the hard decisions that are right for the economy and the country – decisions that help create jobs and help Britain get ahead in this world and help gives all our kids a brighter future.

So we’re reforming welfare to encourage work.

We’re boosting the private sector to create jobs so that those who want to work, can work.

The third part of our plan is to make sure when people are in work, they get to keep more of what they earn.

In other words to make sure you get to keep more of what you earn.

I’m a low tax Conservative.

I believe what you earn is your money, not the government’s money.

So I want to take away less of it in tax, and leave you to spend it how you wish.

Give me the choice between people choosing how to spend their own money, or a politician choosing how to spend it, and I know who I would pick.

That’s good for the economy.

That’s good for society – the more people get to keep from what they earn, they more likely they are to work, the more independent and responsible they will be.

And it also simplifies the system.

Today, we have the bizarre situation where hundreds of thousands of people on low incomes pay tax, only to have to apply to get their money back again in benefits.

But it has to be a real tax cut – paid for by doing the hard working of cutting back government spending.

Not a tax cut paid for with borrowed money – borrowed money that is paid for with higher taxes in the future.

This week – because we’ve done the hard work on spending – we’re bringing in the largest tax cut in a generation.

And it’s paid for.

From this Saturday, the personal allowance – the amount of money you can earn before you start to pay tax – will rise from £8,105 to £9,440.

Nine out of ten working households will be better off as a result of the reforms we’re making this month.

And the average working household will be better off by over £300 a year.

That’s roughly equivalent to an average monthly shop here at Morrison’s.

And next year, we’re going further.

We’re going to increase the personal allowance to £10,000.

Let me repeat that– from next April, you won’t pay any income tax at all on the first £10,000 you earn.

This will mean nearly three million more people will pay no income tax at all.

That’s £700 pounds less in tax for working families than when we came into office.

And let me make clear: we’re not doing it by borrowing more money – meaning you’ll pay for it down the road.

No, we can afford this because as a country we have taken some difficult decisions together on public spending– and it’s only right that the British taxpayer gets rewarded for that.

Let me end by saying this.

You sitting here know that there’s no easy way out of the problems that had built up in this country.

We’re going through some tough times.

The last government spent a decade putting everything on the national credit card, and now we’re having to cut up the cards and start living within our means.

I said at the start that there would be a big political fight this week.

And we will hear plenty from the people who want to say there’s no debt problem.

People who say that there’s no benefits problem either.

That the changes we are making are unnecessary and unfair.

But remember.

These are the people who wasted your hard earned money.

Who left massive debts behind for other people to clear up.

Who created a welfare system that penalised hard working people who played by the rules and rewarded those who didn’t.

What’s fair about that?

What we’re doing this coming week is making welfare fairer, helping to create jobs, and making sure all of you can keep more of what you earn.

We’re supporting hard working people.

That’s the way to protect our future, and make the country fairer too.

Thank you.

George Osborne – 2013 Budget


Below is the text of the Budget Speech made by the Chancellor of the Exchequer, George Osborne, in the House of Commons on 20th March 2013.

Mr Deputy Speaker, this is a Budget for people who aspire to work hard and get on.

It’s a Budget for people who realise there are no easy answers to problems built up over many years.

Just the painstaking work of putting right what went so badly wrong.

And together with the British people we are, slowly but surely, fixing our country’s economic problems.

We’ve now cut the deficit not by a quarter, but by a third.

We’ve helped business create not a million new jobs, but one and a quarter million new jobs.

We’ve kept interest rates at record lows.

But Mr Deputy Speaker, despite the progress we’ve made, there’s much more to do.

Today, I’m going to level with people about the difficult economic circumstances we still face and the hard decisions required to deal with them.

It is taking longer than anyone hoped, but we must hold to the right track.

And by setting free the aspirations of the nation, we will get there.

Our economic plan combines monetary activism with fiscal responsibility and supply side reform.

And today we go further on all three components of that plan: monetary, fiscal, and supply side reform.

But we also understand something else more fundamental.

Our nation is in a global race – competing alongside new centres of enterprise around the world for investment and jobs that can move anywhere.

Building a modern reformed state we can afford.

Bringing businesses to our shores with competitive taxes.

Fixing the banks.

Improving our schools, our skills, our infrastructure, and our industry.

For years people have felt that the whole system was tilted against those who did the right thing: who worked, who saved, who aspired.

These are the very people we must support if Britain is to have a prosperous future.

This is a Budget for those who aspire to own their own home; who aspire to get their first job; or start their own business;

A Budget for those who want to save for their retirement and provide for their children.

It is a Budget for our Aspiration Nation.

Mr Deputy Speaker, the forecast from the independent Office for Budget Responsibility today reminds us of the economic challenge at home and abroad.

But it also reminds us that job creation and employment remain brighter spots.

Since the Autumn Statement, the OBR has revised down again its forecast for global economic growth and sharply revised down its forecast for world trade.

Growth in the US and Japan was flat in the last quarter, while the eurozone shrank by 0.6 per cent – the largest fall since the height of the financial crisis.

The problems in Cyprus this week are further evidence that the crisis is not over, and the situation remains very worrying.

I can confirm that people sent to Cyprus to serve our country, in our military or government, will be protected in full from any tax on their deposits.

The OBR have today sharply revised down their future growth forecast for the eurozone, and expect it will remain in recession throughout this year.

In their words, the “underlying situation remains very fragile”.

I will be straight with the country: another bout of economic storms in the eurozone would hit Britain’s economic fortunes hard again.

40 per cent of all we export, we export to the eurozone.

There is a huge effort across this government to grow Britain’s trade with the fast growing parts of the world – and exports to Brazil, India and China are up almost two thirds.

UK firms now export more goods to non-EU countries than to EU countries: the first time this has happened in over two decades.

But we are still very exposed to what happens on the continent.

Indeed last year, domestic demand was actually stronger than forecast; but it was the weakness of net trade that helps account for much of the weakness in GDP.

As the OBR make clear, “the unexpectedly poor performance of exports is more than sufficient on its own to explain the shortfall”.

GDP for last year has turned out to be a little higher than the OBR forecast in December, but this year, their output forecast is reduced to 0.6 per cent growth.

Despite the recession in the eurozone, the OBR’s central forecast today is that we avoid a second quarter of negative growth here in the UK.

While less than we would like, our growth this year and next year is forecast by the IMF to be higher than France and Germany.

It is a reminder that all western nations live in very challenging economic times.

The OBR then expect the recovery to pick up to 1.8 per cent in 2014, 2.3 per cent in 2015, 2.7 per cent in 2016 and 2.8 per cent in 2017.

Crucially, jobs are being created.

Indeed, in the words of the OBR, the picture on employment “continues to surprise on the upside” in this forecast.

Mr Deputy Speaker, when we started the unavoidable task of reducing the size of the public sector workforce, some in this House expressed doubts that the private sector would be able to make up the difference.

I’m glad to report to the House, that their lack of confidence in British businesses has proved misplaced.

It is a tribute to the energy and enterprise of British companies that for every one job lost in the public sector in the last year, six jobs have been created in the private sector.

The employment rate has been growing faster than in the US and three times as fast as in Germany.

And so despite the weaker GDP, at this Budget the OBR have now revised up further their forecasts for employment.

Compared to this time last year, the OBR now expect 600,000 more jobs in 2013 – and there will be 60,000 fewer people claiming unemployment benefit.

We’ve seen more people in work than ever before – including a record number of women.

A quarter of a million fewer workless households than two years ago.

And the unemployment rate is lower than when we came to office.

Mr Deputy Speaker, the deficit continues to come down.

We have taken many tough decisions to bring that deficit down – and we will continue to do so.

The deficit has fallen from 11.2 per cent of GDP in 2009-10, to a forecast of 7.4 per cent this year.

That is a fall of a third.

It then falls further to 6.8 per cent next year, 5.9 per cent in 2014-15.

5 per cent in 2015-16.

Then 3.4 per cent the following year – reaching 2.2 per cent by 2017-18.

These numbers all exclude the transfer of the Royal Mail pension fund to the government which reduces the deficit still further for this year alone.

Borrowing then falls from £108 billion next year and falls again to £97 billion in 2014-15.

Then £87 billion in the last year of this Parliament.

Before falling again to £61 billion and £42 billion in the following two years.

And to ensure complete transparency, the OBR publish the numbers without the APF cash transfers.

They show, that on that measure too, borrowing is just forecast to fall.

We committed at the start of this Parliament to a fiscal mandate that said we would aim to balance the cyclically adjusted current budget over the following rolling five years.

I can confirm that the OBR says we are on course to meet our fiscal mandate – and meet it one year early.

However, the likelihood of meeting the supplementary debt target has deteriorated.

Public sector net debt is forecast to be 75.9 per cent of GDP this year.

79.2 per cent next year, and 82.6 per cent the year after.

85.1 per cent in 2015-16.

85.6 per cent in the year after.

Before falling to 84.8 per cent in 2017-18.

In response, there are those who would want to cut much more than we are planning to – and chase the debt target.

I said in December that I thought that with the current weak economic conditions across Europe that would be a mistake.

We’ve got a plan to cut our structural deficit.

And our country’s credibility comes from delivering that plan, not altering it with every forecast.

And that’s why interest rates remain so low.

Our judgement has since been supported by the IMF, the OECD and the Governor of the Bank of England.

I don’t propose to change that judgement three months later. Mr Deputy Speaker, I’ve also had representations at this Budget for measures that would add £33 billion a year extra to borrowing on top of the figures I’ve announced.

It’s from people who seem to think that the way to borrow less is to borrow more.

That would pose a huge risk to the stability of the British economy, threaten a sharp rise in interest rates and leave the burden of debts to our children and grandchildren.

I will not take that gamble with the future of this country.

Mr Deputy Speaker, the spending reductions we promised have been more than delivered.

Welfare reforms have been legislated for and are taking place.

And here’s a clear sign of progress: the proportion of national income spent by the state has fallen from 47.4 per cent three years ago to 43.6 per cent today; and it’s on course to reach 40.5 per cent at the end of the period.

We’ve set out the deficit plan – and we’re delivering that plan.

Taken together, the measures I will announce today are fiscally neutral overall.

Ask the British people and they’ll tell you: our problem as a country is not that we’re taxed too little but that the government spends too much.

I agree with them.

So the tax cuts in this Budget aren’t borrowed; they are paid for.

That’s our way – and it’s the only responsible way to lower taxes.

Mr Deputy Speaker, it is the central plank of our economic plan that a tough and credible fiscal policy creates the space for an active monetary policy.

Recovering from the financial crisis has exposed the shortcomings of conventional monetary tools.

We in Britain have had to innovate and develop new tools.

So have other countries.

I confirm today that the Asset Purchase Facility will remain in place for the coming year.

We are now actively considering with the Bank of England whether there are potential extensions to the successful Funding for Lending Scheme that will boost lending still further.

And we are also setting out our plans for lending from our new Business Bank.

But I want to make sure that an active monetary policy plays a full role in supporting the economy.

So I am today setting out an updated remit for the Monetary Policy Committee.

Alongside it, we’re publishing a review of the monetary policy framework.

This Budget confirms the primacy of price stability and the inflation target in Britain’s monetary policy framework.

The updated remit reaffirms the inflation target as two per cent as measured by the twelve month increase in the Consumer Prices Index.

The target will apply at all times.

But as we’ve seen over the last five years, low and stable inflation is a necessary but not sufficient condition for prosperity.

The new remit explicitly tasks the MPC with setting out clearly the tradeoffs it has made in deciding how long it will be before inflation returns to target.

To ensure a fuller communication between the Bank and the Treasury, I am changing the timing of the open letter system so that when inflation is above target, the Governor will write to me on the day the minutes of the next MPC meeting are published to allow for a more substantive exchange of views.

The new remit also recognises that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable.

And it makes clear that the Committee may wish to issue explicit forward guidance, including using intermediate thresholds in order to influence expectations on the future path of interest rates.

For example, that is what the US Federal Reserve has now done – making a commitment to keep interest rates low while unemployment is high, provided inflation is not expected to rise too much.

This can help the economy because it gives families planning their futures, and businesses wondering whether to invest, more confidence that interest rates will stay lower for longer.

So I am asking the MPC to provide an assessment of how intermediate thresholds might work in Britain, and to give that assessment in its August 2013 Inflation Report.

That Report will be the first issued under the Governorship of Mark Carney.

Whether intermediate thresholds are used will be an operational matter for the independent MPC.

I can confirm Mervyn King and Mark Carney have both seen the new remit and they have both agreed it.

Mr Deputy Speaker, active monetary policy can only operate freely when securely anchored by credible fiscal policy.

That is the next component of our economic plan.

We have instituted new public spending controls in government.

When money is short, we make no excuses for the rigorous financial management we have run across Whitehall.

Let me be clear with the House: that is one of the reasons why we have got forecast borrowing falling in this year and next.

The traditional splurge of cash by departments at the end of the financial year, just to get the money spent, has been curtailed.

And thanks to the tough financial control of my RHF the Chief Secretary, government departments are forecast to underspend their budgets by more than £11 billion this year.

If you want to bring borrowing down, then you have to control spending – and that is what we have done.

Now we want to ensure departments have budgets that are more closely aligned to what they actually spend.

So both next year and the year after, we will reduce resource departmental expenditure limits by the equivalent to a 1 per cent reduction for most departments.

The schools and health budgets will remain protected – because our promise to our NHS is a promise we will keep.

Local government and police allocations for 2013-14 have already been set out and will not be affected.

We also deliver in this coming year on this nation’s long-standing commitment to the world’s poorest to spend 0.7 per cent of our national income on international development.

We should all take pride, as I do, in this historic achievement for our country.

As previously, the DfID budget will be adjusted to ensure we don’t spend more than 0.7 per cent.

Mr Deputy Speaker, departmental budgets have yet to be set for the year 2015-16, which starts before the end of this Parliament.

This will done in the Spending Round that will be set out on 26th June.

I said last Autumn that we would require around £10 billion of savings for that Spending Round.

I confirm today that we will instead be seeking £11.5 billion of current savings.

We’ve got to go on making difficult decisions so Britain can live within its means.

And because we make those decisions – we can get our deficit down and focus on our nation’s economic priorities.

Total Managed Expenditure for 2015-16 will be set at £745 billion.

How the savings will be achieved will be a matter for the Spending Round, but existing protections apply.

We’re also taking steps to help all departments achieve the savings required.

Together, my RHFs the Chief Secretary and the Minister for the Cabinet Office have indentified that a further £5 billion of savings in efficiency and cutting the cost of administration can be made.

This will go a huge way towards delivering the Spending Round in a way that saves money but protects services.

So too will action on pay.

The Government will extend the restraint on public sector pay for a further year by limiting increases to an average of up to 1 per cent in 2015-16.

This will apply to the civil service and workforces with Pay Review Bodies.

Local government and devolved administration budgets will be adjusted accordingly in the Spending Round.

We will also seek substantial savings from what is called progression pay.

These are the annual increases in the pay of some parts of the public sector.

I think they are difficult to justify when others in the public sector, and millions more in the private sector, have seen pay frozen or even cut.

I know that is tough but it is fair.

In difficult times with the inevitable trade off between paying people more and saving jobs, we should put jobs first.

However, there is one area of pay where we should be more generous.

Today is also the tenth anniversary of the start of the Iraq War.

The awarding of a posthumous Victoria Cross to Lance Corporal James Ashworth this week reminds us of the courage and sacrifice that all who serve in our armed forces are still making to defend our country.

We will exempt our military from changes to progression pay.

We are also accepting in full from 1st May this year the Armed Forces Pay Review Body’s recommended increase in the so-called X Factor payment made to military personnel to recognise the particular sacrifices they make.

And I can also announce that further awards from the LIBOR banking fines have gone to good military causes, with money for Combat Stress to help veterans with mental health issues and funds for Christmas boxes for all our troops on operations this year and next.

Those who have paid fines in our financial sector because they demonstrated the very worst values are paying to support those in our armed forces who demonstrate the very best of British values.

Mr Deputy Speaker,

Ultimately as a country we will not be able to spend more on the services we all value, from our NHS to our armed forces, or invest in our infrastructure, unless we go on tackling the growth of spending of welfare budgets.

The public spending framework introduced by the previous government divided government spending into two halves: fixed departmental budgets and what is called Annually Managed Expenditure.

Except in practice it was annually unmanaged expenditure – and it includes almost the entire welfare budget as well as items like debt interest and payments to the EU.

I can tell the House that according to the OBR forecast today, the European Budget deal secured by my RHF the Prime Minister has saved Britain a total of £3.5 billion.

We will now introduce a new limit on a significant proportion of Annually Managed Expenditure.

It will be set out in a way that allows the automatic stabilisers to operate – but will bring real control to areas of public spending that had been out of control.

We will set out how more detail on how this new spending limit will work at the Spending Round.

All decisions, on welfare, pay and departments are tough.

And they affect many people.

But if we didn’t take them then what is a difficult situation for them and for the whole country would be very much worse.

Mr Deputy Speaker, active monetary policy and a responsible fiscal policy are two components of our economic plan.

We also need supply side reform – to throw the full weight of our efforts behind the entrepreneurial forces in our society.

Our fundamental overhaul of the planning laws are now helping homes to be built and businesses to expand.

Our reform of schools, universities and apprenticeships is probably the single most important long-term economic policy we’re pursuing.

Our support for European free trade agreements with India, Japan and the US is a priority of our foreign policy.

And we’re building the most competitive tax system in the world.

We now need to do more.

First, we can provide the economy with the infrastructure it needs.

We’re already supporting the largest programme of investment in our railways since Victorian times – and spending more on new roads than in a generation.

We’re giving Britain the fastest broadband and mobile telephony in Europe.

And the Treasury is now writing guarantees to major projects from supporting the regeneration of the old Battersea Power Station site to building the new Power Stations of tomorrow.

We’ve switched billions of pounds from current to capital spending since the spending review.

But on existing plans, capital spending is still due to fall back in 2015-16.

I don’t think that’s sensible.

So by using our extra savings from government departments, we will boost our infrastructure plans by £3 billion a year from 2015-16.

That’s £15 billion of extra capital spending over the next decade.

Because by investing in the economic arteries of this country, we will get growth flowing to every part of it.

And public investment will now be higher on average as a percentage of our national income under our plans than it was in the whole period of the last Government.

In June, we will set out long term spending plans for that long term capital budget.

And we will use the expertise of Paul Deighton, the man who delivered the Olympics and who now serves in the Treasury, to improve the capacity of Whitehall to deliver big projects and make greater use of independent advice.

The second thing we can do to support enterprise is to give our great regional cities and other local areas much greater control over their economic destiny – and back sectors that are global successes.

Private sector employment has been growing more quickly in the North East, North West and Yorkshire than across the country as a whole.

But we can do more.

So I accept Michael Heseltine’s excellent idea of a single competitive pot of funding for local enterprise.

I also fully endorse the report of Doug Richard to make the most our apprenticeships.

We have the second largest aerospace industry in the world.

For the first time in forty years we manufacture for export more cars than we import.

Our agritech business is at the global cutting edge.

We’re backing international successes like these with £1.6 billion of long-term funding for the industrial strategy the Business Secretary launched this week.

And today we build on our new tax reliefs coming in this year for the creative industries like high-end television and animation with new support for our world-class visual effects sector.

To help small firms, we’ll increase by fivefold the value of government procurement budgets spent through the Small Business Research Initiative.

We will fund the proposal to make growth vouchers available to small firms seeking advice on how to expand.

And we’re putting new controls on what regulators can charge, and giving the Pensions Regulator a new requirement to have a regard for the growth prospects of employers.

Mr Deputy Speaker, a vital sector for our economy, and a cost of doing business for everyone, is energy.

Creating a low carbon economy should be done in a way that creates jobs rather than costing them.

The granting of planning permission yesterday at Hinkley Point was a major step forward for new nuclear.

Today, with the help of my HF the Energy Minister, we also announce our intention to take two major carbon capture and storage projects to the next stage of development.

We’ll support the manufacture of ultra low emission vehicles in Britain with new tax incentives.

The HM for Stoke on Trent Central has argued passionately and in a non-partisan way about the damage energy costs are doing to his city’s famous ceramics industry – and he’s persuaded me.

So we will exempt from next year the industrial processes for that industry and some others from the Climate Change Levy.

And in the Spending Round we will provide support for energy intensive industries beyond 2015.

For the North Sea we will this year sign contracts for future decommissioning relief, the expectation of which is already increasing investment there.

But I also want Britain to tap into new sources of low cost energy like shale gas.

So I am introducing a generous new tax regime, including a shale gas field allowance, to promote early investment.

And by the summer, new planning guidance will be available alongside specific proposals to allow local communities to benefit.

Shale gas is part of the future.

And we will make it happen.

Mr Deputy Speaker, we can help companies grow and succeed by building infrastructure, backing local enterprise and supporting successful sectors.

But nothing beats having the most competitive business tax system of any major economy in the world.

That is what this government set out to achieve.

That is what we’re delivering.

The accountants KPMG do a survey of investors that ranks the most competitive tax regimes in the world.

Three years ago, we were near the bottom of that table.

Now we’re at the top.

But in this global race, we cannot stand still.

So today, we step up the pace.

Our Seed Enterprise Investment Scheme offers generous incentives to investors in start ups.

My HF for Braintree and David Young have done a great job helping promote it around the country.

They have asked me to extend the CGT holiday – and I will.

Employee ownership helps create an enterprise culture.

So we’re making our new employee shareholder status more generous, with NICs and income tax relief.

And we’re introducing capital gains tax relief for sales of businesses to their employees.

Companies that look after their employees, and help them return to work after periods of sickness, will get new help through the tax system too.

And we’re going to double to £10,000 the size of the loans that employers can offer tax free to pay for items such as season tickets for commuters.

This is a great idea from my HF for Witham, and I’m happy to put it into practice.

My HR for Enfield North and others have put forward proposals to help investment in social enterprises.

I have listened and we will introduce a new tax relief to encourage private investment in these social enterprises.

Research and development is absolutely central to Britain’s economic future.

So today I’m increasing the rate of the above the line R & D credit to 10 per cent.

Along with our new 10 per cent corporation tax rate on profits from patents coming in next month, this will help make us one of the most internationally attractive places to innovate.

I also want Britain to be the place where people raise money and invest.

Financial services are about much more than banking.

In places like Edinburgh and London, we have a world beating asset management industry.

But they are losing business to other places in Europe.

We act now with a package of measures to reverse this decline – and we will abolish the schedule 19 tax which is only payable by UK domiciled funds.

Many medium sized firms and start-ups use the Alternative Investment Market to raise funds to help them grow.

Many observers of the British tax system complain that it has long biased debt financing over equity investment.

So today I am abolishing altogether stamp duty on shares traded on growth markets such as AIM.

In parts of Europe they’re introducing a financial transaction tax.

Here in Britain we’re getting rid of one.

From April next year, this will directly benefit hundreds of medium-sized UK firms, lowering their cost of capital and supporting jobs and growth across the UK.

Mr Deputy Speaker, we also out compete the world with our headline rate of corporation tax.

In Germany, the corporate tax rate is 29 per cent.

In France it is 33 per cent.

In the United States its 40 per cent.

Here in Britain we’ve cut corporation tax from the 28 per cent we inherited to 21 per cent next year.

But I want to go further.

Today, I want us to send a message to anyone who wants to invest here, to create jobs here, that Britain is open for business.

So in April 2015 we will reduce the main rate of corporation tax by another 1 per cent.

Britain will have a 20 per cent rate of corporation tax – the lowest business tax of any major economy in the world.

That’s a tax cut for jobs and growth.

We will have achieved in one Parliament in these difficult times the largest reduction in the burden of corporation tax in our nation’s history.

And with it we will achieve major simplification of our business tax system.

By merging the small company and main rates at 20p, we will abolish the complex marginal relief calculations between them, and give Britain a single rate of corporation tax for the first time since 1973.

As with previous reductions in the corporate tax rate, I do not intend to pass the benefit onto to the banking sector – so I will offset this reduction by increasing the Bank Levy rate next year to 0.142 per cent.

Mr Deputy Speaker,

Britain is moving to low and competitive taxes.

But we should insist people and business pay those taxes, not aggressively avoid them or evade them.

That’s the right way to succeed in the global race.

Today, I am unveiling one of the largest ever packages of tax avoidance and evasion measures presented at a Budget.

The details are set out in this Red Book.

They include agreements with the Isle of Man, Guernsey, and Jersey to bring in over a billion pounds of unpaid taxes.

New rules to stop the abuse of partnership rules, corporate tax losses and offshore employment intermediaries.

That’s another two billion pounds.

This year we’re giving Britain its first ever General Anti-Abuse Rule.

And we will name and shame the promoters of tax avoidance scheme.

My message to those who make a living advising other people how aggressively to avoid their taxes is this:

This Government is not going to let you get away with it.

And this year, we are leading international action on tax avoidance, through our Presidency of the G8, with the OECD and at the G20.

We want the global rules governing the taxation of multinational firms to be updated from the 1920s when they were first written, and made relevant to the global internet economy of the twenty first century.

This is the right and fair thing to do.

Mr Deputy Speaker, a tax system where people and businesses pay what is expected of them is part of the glue that holds society together.

So too is the expectation that those who work hard, who play by the rules, who save for their future and try to be independent of the state are not undermined but supported.

So to the working parents struggling with the costs of childcare, and the mother wondering whether it makes financial sense to get a job, we offer this:

Tax free childcare.

The plans were set out yesterday.

New tax-free childcare vouchers for working families: 20 per cent off the first £6,000 of your childcare costs for each child.

And increased childcare support for those low income working families on universal credit.

And for those who aspire to put aside money for their retirement: we offer this.

A simple, flat rate pension accessible to everyone and worth £144 a week.

Any one pound you save, will be a pound you can keep.

We’re bringing forward the introduction of the new Single Tier Pension to 2016.

It will help the low paid, the self-employed and millions of women most of all.

Of course, if there’s no longer the old state second pension, there’s no longer anything to contract out of.

For employers that means paying the same employer national insurance as those without defined benefit schemes.

Private sector employers can adjust their pension benefits to accommodate the extra cost;

Public sector employers will have to absorb the burden, as is always the case with tax changes.

Any spending review in the next Parliament will, of course, take the £3.3 billion cost into account.

As we have already made clear, public sector employees, and the relatively small number of private sector employees in defined benefit schemes, will from 2016 pay more national insurance then they do today.

So they will pay the same rate of national insurance as the rest of the working population, and in return, they will get a larger state pension than before.

For example, someone who is 40 years old when the single tier pension is introduced, and who has always been contracted out, will pay an extra £6,000 in national insurance over the rest of their working life – and in return get an extra £24,000 in state pension over the course of their retirement.

That’s a fair deal.

And it’s a progressive pension reform.

We’ve also made clear before that the extra £1.6 billion raised in employee national insurance will not be kept by the Treasury.

Mr Deputy Speaker, there’s another group of savers I want to talk about today.

I am proud to be part of a government that has helped compensate the policy holders of Equitable Life who had suffered a great injustice.

But we’ve not extended help to those who bought their With Profits Annuity before 1992.

Now we can.

I’d like to acknowledge the work of my HF for Harrow East on behalf of these people.

We will make ex-gratia payments of £5,000 to those elderly policyholders; and we’ll make an extra £5,000 available to those on the lowest incomes who are on pension credit.

We’re not doing this because we’re legally obliged to; we’re doing it because quite simply it’s the right thing to do.

Helping with aspiration also means helping those who want to keep their homes instead of having to sell it to pay for the costs of social care.

That’s what our new cap will deliver – as Andrew Dilnot recommended.

It’ll also come in in 2016.

It will be set to protect savings above £72,000, and we’ll raise the threshold for the means test on residential care from just over £23,000 to £118,000 that year too.

For decades politicians have talked of doing something for savers and those who have to sell their homes to pay for care; and yet nothing has been done.

Until this week.

And I want to do much more.

For unless we fire up the aspirations of the British people, light the fires of ambition within our nation, we are going to be out-smarted, out-competed and out-performed by others in the world who are prepared to work harder for success than we are.

So this Budget makes a new offer to the aspiration nation.

And what symbolises that more than the desire to own your own home.

Today I can announce Help to Buy.

The deposits demanded for a mortgage these days have put home ownership beyond the great majority who cannot turn to their parents for a contribution.

That’s not just a blow to the most human of aspirations – it’s set back social mobility and it’s been hard for the construction industry.

This Budget proposes to put that right – and put it right in a dramatic way.

Help to Buy has two components.

First, we’re going to commit £3.5 billion of capital spending over the next three years to shared equity loans.

From the beginning of next month, we will offer an equity loan worth up to 20 per cent of the value of a new build home – to anyone looking to move up the housing ladder.

You put down a five per cent deposit from your savings, and the government will loan you a further 20 per cent.

The loan is interest free for the first five years.

It is repaid when the home is sold.

Previous help was only available to those who were first time buyers, and who had family incomes below £60,000.

Now help is available to all buyers of newly built homes on all incomes.

Available to anyone looking to get on or move up the housing ladder.

The only constraint will be that the home can’t be worth more than £600,000 – but this covers well over 90 per cent of all homes.

It’s a great deal for homebuyers.

It’s a great support for home builders.

And because it’s a financial transaction, with the taxpayer making an investment and getting a return, it won’t hit our deficit.

The second part of Help to Buy is even bolder – and has not been seen before in this country.

We’re going to help families who want a mortgage for any home they’re buying, old or new, but who cannot begin to afford the kind of deposits being demanded today.

We will offer a new Mortgage Guarantee.

This will be available to lenders to help them provide more mortgages to people who can’t afford a big deposit.

These guaranteed mortgages will be available to all homeowners, subject to the usual checks on responsible lending.

Using the government’s balance sheet to back these higher loan to value mortgages will dramatically increase their availability.

We’ve worked with some of the biggest mortgage lenders to get this right.

And we’re offering guarantees sufficient to support £130 billion of mortgages.

It will be available from start of 2014 – and run for three years.

And a future Government would need the agreement of the Bank of England’s Financial Policy Committee if they wanted to extend it.

Help to Buy is a dramatic intervention to get our housing market moving:

For newly built housing, Government will put up a fifth of the cost.

And for anyone who can afford a mortgage but can’t afford a big deposit, our Mortgage Guarantee will help you buy your own home.

That is a good use of this Government’s fiscal credibility.

In the Budget Book, we also set out more plans for housing:

– Plans to build 15,000 more affordable homes

– Plans to increase fivefold the funds available for building for Rent

– And plans to extend the Right to Buy so more tenants can buy their own home.

Mr Deputy Speaker,

People also have the aspiration to keep more of what they earn.

That’s a difficult aspiration for any Chancellor to help with – when economic times are tough and money is short.

But we’re doing the hard work to reduce current spending.

We’ve set out a tough package to raise money from tax avoiders.

And that means that with this Budget we can stick to the path of deficit reduction, increase capital spending, and still find ways to help families.

Let me turn to duties.

We inherited a fuel duty escalator that would have seen above inflation increases in every year of this Parliament.

We abolished the escalator and we’ve now frozen fuel duty for two years.

This has not easy.

The government has forgone £6 billion in revenues to date.

But oil prices have risen again.

Families budgets are squeezed.

And I hear those who want me to do more to help them get by.

My HF for Harlow has again spoken up for his hard working constituents.

He’s been joined by many other HFs, like the Member for Argyll and Bute.

We’ve all listened to the people we represent.

Today, I am cancelling this September’s fuel duty increase altogether.

Petrol will now be 13 pence per litre cheaper than if we had not acted over these last two years to freeze fuel duty.

For a Vauxhall Astra or a Ford Focus that’s £7 less every time you fill up.

Mr Deputy Speaker, there’s another duty escalator – the annual two percent above inflation increases in alcohol.

We’re looking at plans to stop the biggest discounts of cheap alcohol at retailers.

But responsible drinkers – and our pubs – should not pay the price for the problems caused by others.

The sad fact is that we’ve lost 10,000 pubs in the UK over the last decade.

Many HM’s have raised their concerns with me like my HF for Bristol North West.

My HF for Burton and Uttoxeter in particular has been a committed champion of the famous brewing industry that employs many of his constituents.

I intend to maintain the planned rise for all alcohol duties – with the exception of beer.

We will now scrap the beer duty escalator altogether.

And instead of the 3p rise in beer duty tax planned for this year I am cancelling it altogether.

That’s the freeze people have been campaigning for.

But I’m going to go one step further and I am going to cut beer duty by 1p.

We’re taking a penny off a pint.

The cut will take effect this Sunday night and I expect it to be passed on in full to customers.

All other duties will remain as previously announced.

Mr Deputy Speaker,

Of course, freezing petrol duty and cutting beer duty will not transform the finances of any family.

But it helps a little to have some bills that aren’t going up.

And it helps a lot to be able to keep more of the money you earn before you pay tax on it.

This Government supports people who work hard and want to get on.

When we came to office, the personal income tax allowance stood at under six and a half thousand pounds.

In two weeks time, the allowance will reach £9,440 with the single largest cash increase in its history.

24 million taxpayers will see their income tax bill cut by an extra £200.

Over 2 million of the lowest paid will be taken out of tax altogether.

In this Budget, the Government reconfirms its commitment to raising the personal allowance to £10,000.

In fact, we go one better.

Mr Deputy Speaker, we said we would raise the personal allowance to £10,000 by the end of the Parliament.

Today I can confirm we will get there next year.

From 2014, there will be no income tax at all on the first £10,000 of your salary.

£10,000 of tax free earning.

That’s £700 less in tax for working families than when this Government came to office.

Almost three million more of the lowest paid will pay no income tax at all.

It’s a historic achievement for this government and for hard working families across the country.

Mr Deputy Speaker, there is one final tax change I want to tell the House about.

And it’s about jobs.

For in the end, aspiration is about living in a country where people can get jobs and fulfil their dreams.

The ending of contracting out that I talked about generates extra employee national insurance revenues for the Exchequer.

I want to put those revenues to good use.

I want to support jobs and the small businesses that create them.

And I want to do it with a reforming tax cut – in fact it’s the largest tax cut in the Budget.

The cost of employing people is a burden on small firms.

And it is a real barrier to taking an extra person on.

To help create jobs and back small businesses in this country I am today creating the Employment Allowance.

The Employment Allowance will work by taking the first two thousand pounds off the employer National Insurance bill of every company.

It’s a tax off jobs.

It’s worth up to £2,000 to every business in the country.

And it will mean that 450,000 small businesses – one third of all employers in the country – will pay no jobs tax at all.

For the person who’s set up their own business, and is thinking about taking on their first employee – a huge barrier will be removed.

They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax.

98 per cent of the benefit of this new Employment Allowance will go to SMEs.

It will become available in April next year once the legislation is passed.

And we’ll also make it available to charities and community sports clubs.

Today this Government is taking tax off jobs.

Mr Deputy Speaker, a new Employment Allowance.

A 20 per cent rate of Corporation Tax.

A £10,000 Personal Allowance.

Major achievements delivered by this Government in difficult times.

We understand that the way to restore our economic prosperity is to energise the aspirations of the British people.

If you want to own your own home;

If you want help with your childcare bills;

If you want to start your own business;

Or give someone a job;

If you want to save for your retirement;

And leave your home to your children;

If you want to work hard and get on – we are on your side.

This is a Budget that doesn’t duck our nation’s problems.

It confronts them head on.

It is a Budget for an aspiration nation.

It is a Budget for a Britain that wants to be prosperous, solvent and free.

And I commend it to the House.

George Osborne – 2013 Speech on Banking Reform


Below is the text of a speech made by the Chancellor of the Exchequer, George Osborne, on the subject of banking reform. The speech was made in Bournemouth on 4th February 2013.

Thank you for welcoming me to JP Morgan here in Bournemouth.

When you think about where to give a speech on culture and ethics and the future of British banking, the offices of one of the world’s largest American investment banks may seem like an odd choice of venue.

But it’s a deliberate one.

For the four thousand people who work here are, each one of you, a reminder that when banking works, it works for the families and communities of the whole of Britain.

You, each one of you, are a reminder that when we attract international firms to our country – firms that could go anywhere in the world to do their business – those firms bring jobs, and investment and prosperity.

That for every one of the people employed here at the largest business in Dorset, there are many more employed in the businesses that support this office, in the shops that take your custom, and in the local economy that has grown stronger on your back.

I’m going to see two of those businesses after I speak here – a catering company and a landscaping business called Stewarts.

Four of the employees at that landscaping business work full time on JP Morgan site, jobs that wouldn’t exist without your presence.

From JP Morgan, one of the world’s biggest companies, to Stewarts landscaping, Bournemouth teaches us that Britain should continue to aspire to be a home to the world’s financial services.

And what is true for Bournemouth is also true of Bristol, and Edinburgh, Leeds, Cardiff, Birmingham and Manchester.

In all these cities, financial services are some of our largest and most innovative employers.

And it’s true about London too – and the City of London.

Generations have created in the City something extraordinary – a global centre of finance.

The global centre of finance.

Whether its insurance and accountancy, shipping and legal services, hedge funds, private equity, asset management or investment banking, when the world wants to transact – it wants to transact through London.

And we want to keep it that way in the years ahead.

That’s why it’s been good to see Britain and London maintain its number one spot as the home of global financial services.

That’s why it’s been exciting to see the first Renminbi bond issued anywhere in the world outside of Chinese sovereign territory issued in London in the last twelve months.

For that is not just good for their future, it’s good for ours too.

It’s how we will win in the global race.

It’s what I am personally determined to achieve.

And part of having a successful financial services industry is having successful British banks, who want to lend at home and compete around the world.

Think of some of the most important moments in your life.

When you bought your own home with a mortgage.

When you took the plunge and started your own business.

When you retired and drew on your pension.

On each of those occasions, you relied on the financial system and put your trust in them

That is why it’s so important to have that trust reciprocated and a banking system that works for you.

And that is what I’m working night and day to deliver for you.

Like all this Government’s reform – to welfare, to the economy, to schools and to banking – we want to back aspiration and be on the side of those who want to work hard and get on.

Our principles are simple: if you do the right thing, government should support and help you, and remove the barriers in your way.

If you do the wrong thing, you should take responsibility for your actions.

And sadly, nowhere have these simple principles been broken more clearly and indefensibly than in our banking system over the last decade.

Irresponsible behaviour was rewarded, failure was bailed out, and the innocent – people who have nothing whatsoever to do with the banks – suffered.

For many, the financial crash was confirmation of what they felt about our society: that those who are only out for themselves get away with it; and those who work hard and play by the rules get punished.

That is why, five years on from that crash, people are still so angry.

And when people discover more about what went so wrong:

– the mis-selling of interest rate swaps to small firms who went bust as a result;

– the greed and corruption on the LIBOR trading floor.

They get angrier still.

I understand that anger.

I feel it too.

But anger can be a negative, destructive thing if it is not channelled into change.

Change for the good.

Any bunch of politicians can bash the banks, chase the headlines, court the populist streak.

But what good would that do our country?

The jobs, the investment, the banking system we all need would go with it.

Let’s take the anger we feel about the banks and turn it into change to build the banking system that works for us all.

That is precisely what we are doing.

And through the work we’ve done, the expert help we’ve enlisted, we can make 2013 the year of change in our banking system.

2013 is the year when we re-set our banking system.

So the banks work for their customers – and not the other way round.

So that those who guard over the banks to keep our economy safe are the right people with the right weapons to do the job.

And so that when mistakes are made, it’s the banks and not the taxpayer that picks up the bill.

Let me explain how.

Let me tell you about the four concrete things that are going to change this year.

First, we’ve got a brand new watchdog with new powers to keep our banks safe so they don’t bring down the economy.

Second, we’ve got a new law to separate the branch on the high street from the dealing floor in the city to protect taxpayers when mistakes are made.

Third, we’re going to start, with the industry, changing the whole culture and ethics of the business, so they work for you.

Fourth, we’re going to give customers the most powerful weapon of all: choice.

Real choice about who you bank with – and choice to change who you bank with if you want a better deal.

Let me take each in turn.

First, protecting our economy by keeping our banks safe.

The decision taken by the last government to divide responsibility for financial stability from banking supervision was one of the worst economy policy mistakes of the modern era.

The Bank of England was stripped of its responsibility for keeping the banking system safe.

The Financial Services Authority was only focussed on compliance, with a myriad of individual rules, and missed the wood for the trees.

The Treasury’s banking division was run down.

No-one saw it as their job to monitor risks across the whole system.

So no-one spotted the increase of debt.

Staggeringly, total debt reached five times the size of the entire economy.

The fire alarm was ringing when Northern Rock handed out 120 per cent mortgages.

The fire alarm was ringing when the Royal Bank of Scotland made its reckless purchase of ABN AMRO, after the credit markets had already seized up.

The fire alarm was ringing, but no-one was listening.

And when the crisis hit, the fire was then so great that the whole economy was sacrificed to put it out.

Ten per cent of the entire wealth of this country was lost.

Hundreds of thousands of people lost their jobs and their livelihoods.

Yes, those responsible should be held to account.

But British people need to know that lessons have been learnt.

And they have.

This April, the FSA is being abolished.

This April, the Bank of England will be in charge of keeping our financial system safe.

With the authority that comes from its history, and the new powers we have given it for the future, the Bank of England will be the super cop of our financial system.

The Bank is ready.

The logistics are in place.

And from day one, we will have a powerful new watchdog with real teeth.

Not just to intervene and stop individual wrong doing.

But the power to make a judgement call about the whole system – the power to spot increases in debt or warn of risky practices.

The power to call time before the party gets out of control.

But also the power to support the economy if credit conditions get too tight.

The Bank of England won’t be just empowered to protect us from the excesses of a banking boom, but also to help the bank support us in a bust.

And we’re also creating from April a strong new conduct regulator, the FCA, to ensure London and the UK have the best, most open, and transparently policed markets in the world.

That will win business for Britain, attract investment.

And through the Funding for Lending scheme, we’re giving banks incentives to boost lending to families and businesses.

We’ve already seen the availability and cost of borrowing coming down, but we are monitoring it closely to ensure that rates and availability continue to improve.

Good regulation.

Watchdogs with real teeth.

Open markets with clear rules, properly policed.

These support innovation.

For the industry that suffers most when something goes wrong in finance – is finance itself.

Second, this year we’re going to start separating the high street banking we all depend on from the City trading floor.

When the RBS failed, my predecessor Alistair Darling felt he had no option but to bail the entire thing out.

Not just the RBS on Britain’s high streets, but the trading positions in Asia, the mortgage books in sub-prime America, the property punts in Dubai.

I want to make sure that the next time a Chancellor faces that decision they have a choice.

To keep the bank branches going, the cash machines operating, while letting the investment arm fail.

No more rewards for failure.

No more too big to fail.

No more taxpayers forking out for the mistakes of others.

The same rules for the banking business as any other business in a free market.

When the Government came into office, there was no agreement about how this massive task would be achieved.

That’s why we spent two and a half years painstakingly building a consensus on the future structure of our banking industry, working with leading experts and Members of Parliament and I want to thank Vince Cable for his help in doing that with me.

The work that Sir John Vickers and his Commission has done has won respect all around the world, and has already influenced the European debate.

Today, we are published the legislation that will turn their ideas and this consensus for change into law.

A law for the first time ever, to separate the retail and investment arms of banks, and erect a ring fence around the retail bank so its essential operations continue even if the whole bank fails.

I’m sending the legislation to the House of Commons today and I expect them to be passed by Parliament this time next year.

It won’t mean banks won’t make mistakes.

But it does mean that if they do, those parts of the banking system that are vital for families and businesses can continue without resort to the taxpayer.

Today, we will go further than previously announced, enshrining in law these simple principles.

I can announce that your high street bank will have different bosses from its investment bank.

Your high street bank will manage its own risks, but not the risks of the investment bank.

And the investment bank won’t be able to use your savings to fund their inherently risky investments.

My message to the banks is clear: if a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether – full separation, not just a ring fence.

We’re not going to repeat the mistakes of the past.

In America and elsewhere, banks found ways to undermine and get around the rules.

Greed overcame good governance.

We could see that again – so we are going to arm ourselves in advance.

In the jargon, we will “electrify the ring fence”.

I want to thank Andrew Tyrie and the fellow members of the Banking Commission we established for help developing this important new idea.

Let’s get on and pass it all into law.

Let me turn to the third force for change – a change in the culture and ethics of the banking industry itself.

I have to say nowhere is this more keenly appreciated than in the responsible parts of the financial community itself.

You here work hard in a great business.

You service customers all over the world.

You don’t want the name of your whole industry to be besmirched because of the crimes of a few.

And nor do I.

That’s why the LIBOR scandal is about far more than atoning for the mistakes of the past.

It’s about becoming a catalyst for change in the future.

We know what happened.

From 2005, traders, brokers and bank officials attempted manipulation of one of the most important reference rates in our economy – a rate which affects the mortgage payments and loan rates of millions of families and hundreds of thousands of firms, large and small.

Deliberately submitting false rates for no motive other than greed.

“Lowballing” their Libor submissions to conceal how vulnerable their banks really were.

Years of manipulation, in twenty banks on three continents.

Over a billion pounds of fines have already been applied worldwide.

And we still haven’t seen the full extent of it – more revelations will come.

We’re expecting reports into what happened at RBS very shortly.

I expect there will be even more public anger – if that’s possible.

But anger is not enough – we need to channel the anger into change.

And I want to do the right thing for the hundreds of thousands of people in the banking sector – like you – in all parts of our country who do conduct themselves with professionalism – and make sure the reputation and standards of the industry are restored.

LIBOR manipulation happened in many countries.

But no country has responded as quickly as decisively as we have now done.

Where people have broken the law, the authorities will have all the resources they need to make sure they are punished.

I’ve changed the system I inherited so that fines paid by banks for wrongdoing got to good causes not back to the industry – I have already announced that £35 million pounds of Barclay’s fines will go to British Armed Forces charities to help those who fight on all our behalves.

The first million has been allocated to the Fisher House Project, which will help the families of wounded soldiers being treated at the Queen Elizabeth Hospital in Birmingham to stay close by.

And we’re now stepping in to regulate previously unregulated markets and we’re making it a criminal offence to make misleading statements about LIBOR.

Shockingly that was not the case before.

And as we approach bonus season let me say this.

This country now has the toughest and most transparent pay regime of any major financial centre in the world.

City bonuses fell by almost two thirds last year, and are less than a quarter of their peak before the crash.

Everyone should exercise restraint and responsibility, but it’s important to remember that the vast majority of people in the banking sector – like the people in this room – do not receive million pound bonuses.

We all know there are Libor investigations ongoing into RBS in both the UK and the US.

Any UK fine will benefit the public.

And when it comes to RBS, I am clear that the bill for any US fine related to this investigation should on this occasion be paid for by the bankers, and not the taxpayer.

But the change to the culture and ethics of banking go beyond bonuses and fines.

I believe we need proper professional standards in the banking sector – just as we have for doctors and lawyers.

I want to see the industry take pride in those standards, as our medical and legal professions do.

And I want to see how we can strengthen the sanctions regime for senior bankers – for example, should there be a presumption that the directors of failed banks do not work in the sector again?

I have asked the Parliamentary Commission to look at how to improve the professional standards and culture of the banking sector.

Their work is underway and will report in the spring.

I would encourage the Commission to come forward with far reaching proposals.

The fourth and final change we need to banking is more choice.

Choice is the most powerful tool we have to improve markets and customer service, reward good companies and penalise poor ones.

Yes, our new regulator can pick up the pieces from the interest swap mis-selling or PPI.

Yes, I believe we must do much more to expose hidden charges and remove the conflicts of interest that plague too much so called independent financial advice.

But I also want to see more banks on the high street, so customers have more choice.

One of the prices we’re paying for the financial crisis is that our banking sector is now dominated by a few big banks.

It verges on an oligopoly.

75% of all personal current accounts are in the hands of just four companies.

I want new faces on the high street.

I want upstart challengers offering new and better services that shake up the established players.

We’ve made a start: with the sale of Northern Rock to Virgin Money, and the proposed sale of Lloyds branches to Co-op.

We’re seeing new banks like Metro Bank on our high streets – but I want to make it easier to start a small bank and grow the business.

This year, in 2013, we’re taking a huge step towards making that happen – by making it easier for customers to move banks if they can get a better deal elsewhere.

From September this year, every customer of every bank in Britain will be able to switch their bank account from their existing bank to another one in seven days.

All they will have to do is sign up to a new bank – and the rest will follow.

All the direct debits, the standing orders, everything will be switched for you with no hassle.

This is a revolution in customer choice.

But today, we will go further.

Payments systems sit at the heart of the banking system.

They are the hidden from view wirings that operate every time you get wages paid into your bank account, deposit a cheque or withdraw money from an ATM.

It’s how the money flows around the system.

And it’s a bit like the electricity grid, every person and every business needs to be plugged into them to enter the banking market.

At the moment, a new player in the industry has to go to one of the existing big banks to use the payment system.

Asking your rival to provide you with the essential services you need at a reasonable price is not a recipe for success.

And it other walks of life, like telecoms, we don’t operate like that.

There are no incentives on the big banks to deliver new and better services for users – like saving the cheque or creating new services like mobile payments.

Why, in the age of instant communication, do small businesses have to wait for several days before they get their money from a credit or debit card payment?

It should be much quicker.

Why do cheques take six days to clear?

Customers and businesses should be able to move their money round the system much more quickly.

Why is it that big banks can move their money around instantly, but when a small business wants to make a payment it takes days?

The system isn’t working for customers, so we will change it.

I can announce today that the Government will bring forward detailed proposals to open up the payment systems.

We will make sure that new players in the market can access these systems in a fair and transparent way.

The last Government let the established players off the hook by failing to implement the conclusions of the review they themselves commissioned, and allowing the big existing banks to regulate themselves.

This Government will make sure payment systems serve the needs of consumers, not the needs of the established banks.

Bank working for their customers, not themselves.

Taxpayers’ money protected.

The guardians of financial stability with the tools they need to keep us safe.

On all these fronts, we are making major changes.

A financial industry that is strong, successful and inspires the pride of all those who work for it.

That’s what Government should be about – taking the big tough decisions because they’re right for the long-term good of our country.

Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system.

The anger people feel is very real.

Let’s turn that anger from a force of destruction into a force for change.

Change that will give us a banking system that will work for us all.

In 2013, thanks to the changes we are making, that goal is in sight.