Tag: 2010

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, at Bloomberg in London on 17th August 2010.

Thank you.

I am very grateful to Bloomberg for inviting me to speak here today.

August used to be regarded as a quiet month for the economy. In the last three years, it has been anything but.

It was in August 2007 that the inter-bank credit markets froze up and heralded the start of the credit crunch.

By the following August we were on the cusp of a full scale banking crisis that led to taxpayer-funded bailouts of some of the largest banks in the world.

And last summer we saw the first signs that fears about the liquidity and solvency of banks would become fears about the creditworthiness of the governments that stand behind them.

Thankfully, this August is proving to be a little quieter – so far.

And here in Britain we can start to be cautiously optimistic about the economic situation.

GDP growth in the second quarter surpassed expectations at 1.1%, with all but 0.2% of that coming from the private sector.

Employment is growing at the fastest pace for over a decade, confounding predictions that the economy cannot generate private sector jobs.

Manufacturing is picking up and exports are recovering thanks to increasing global demand.

As the Bank of England confirmed last week, this is consistent with the kind of gradual recovery forecast by the Office for Budget Responsibility at the time of the Budget.

The much-needed rebalancing of our indebted economy – away from government and towards the private sector, away from consumption and towards business demand, away from imports and towards exports – is beginning.

But of course, we must remain cautious.

Inflation is proving more persistent than expected, as the Bank of England Governor explained in his letter to me this morning.

The availability of credit to support business expansion is limited and needs to improve.

Despite the strength of the German economy, data for Japan and the US has been less encouraging, undoubtedly contributing to lower global confidence.

And of course, the world remains concerned about sovereign debt issues at a time when our budget deficit remains the largest in the G20.

So I agree with Mervyn King when he said last week that we are likely to face a choppy recovery.

To expect a smoother ride after the biggest economic crisis of our lifetimes, and with the debt problems this Government has inherited, would be asking too much.

But I’m optimistic that if we:

– stick to the course we have set ourselves on;

– hold firm to our plans;

– deal with our debts;

– start to rebalance our economy;

– and provide the stability Britain has been so lacking in recent years;

– then we can navigate our way through to calmer waters.

The alternative – to change course, put off dealing with our problems, be in denial about the scale of the deficit – is the surest way to disaster.

It would wreck the British economy.

And that is my central argument today as we start to approach the spending review this autumn.

There are some political opponents who claim that in setting out our decisive plans to deal with the deficit we have a taken a gamble with Britain’s economy.

In fact the reverse is true.

The gamble would have been not to act, to put Britain’s reputation at risk, and to leave the stability of the economy to the vagaries of the bond market, assuming investors around the world would continue to tolerate the largest budget deficit in the G20.

The actions we took in the Budget have removed the biggest downside risk to the recovery – a loss of confidence and a sharp rise in market interest rates.

Britain now has a credible plan to deal with our record deficit. We must stick by it. To budge from that plan now would risk reigniting the markets’ suspicions that Britain does not have the will to pay her way in the world.

I will not take that risk.

So today I want to explain why the Spending Review this Autumn is a crucial stepping stone on the way to recovery, and I want to set out how the choices within that review will lay the foundations for future growth and for a fairer society.

First we need to understand how Britain got here.

The previous Government’s economic policy was based on two central assumptions:

– that they had abolished the economic cycle;

– and that they had achieved a permanently higher trend rate of economic growth.

These assumptions were used to justify increased spending, persistent deficits, cheaper credit, growing imbalances and ballooning personal debt.

Of course many of the same features existed elsewhere, notably the US, but they were more pronounced in Britain than anywhere else.

We were left with the biggest deficit, the most indebted households, and the most leveraged banks.

I don’t think it’s unreasonable to say that this was the greatest failure of British economic policy-making for more than 30 years, since the IMF crisis of 1976.

The fallacy of the first assumption – the end of boom and bust – is plain for all to see.

What was said to be sustainable growth turned out to be a debt-fuelled boom that was followed by the deepest and longest bust since the War.

Sadly for all of us, the second assumption – an increase in the trend growth rate – also turned out to be a fallacy.

Much was made of the impact of the previous Government’s policies on the economy’s long term potential to grow – after all that was what “post neo-classical endogenous growth theory” was meant to be all about.

Year after year, Budget documents used increasingly optimistic assumptions – authorised by the then Chancellor – about the trend growth rate to justify never-ending increases in public spending and the emerging deficit needed to fund them.

When disaster struck, the explanation was simply that a perfectly sustainable economy had been hit by a bolt from the blue that knocked 5% off the economy’s sustainable level of output.

In the June Budget, the independent Office for Budget Responsibility looked at the evidence and concluded that the economy’s trend rate of growth is in fact close to its long-term average of around 2¼ %, significantly lower than the previous Government’s assumptions.

Rather than a bolt from the blue, the recession now looks wearily familiar – the bust that follows a boom.

And this view is supported by what happened to the deficit – it turned out the country could not afford the extent of the extra spending after all.

Thanks to the hard work of Sir Alan Budd the interim OBR has taken the business of forecasting out of the hands of politicians.

In the week in which he steps down, I want to thank him for his public service. Those interested in replacing him have just one more day to apply for the job.

This autumn we will legislate to put the Office on a permanent footing so that no future Chancellor can invent their own forecasts to justify their fiscal follies.

We are learning from past mistakes, even as we deal with their consequences.

Those consequences are clear.

A record budget deficit of 11% of GDP.

Government spending that accounts for almost half of national income.

One million additional people out of work.

A large debt overhang for both government and households.

And serious imbalances in the structure of our economy that have gone unaddressed for too long.

But these considerable challenges can be overcome.

The UK is a very open trading economy.

It now has a stable and strong coalition Government, able to take the very decisions which my predecessor now admits were delayed for too long.

I make no apologies for setting a brisk pace since taking office.

In the space of 100 days we have:

– completed a review of in-year public spending and found over £6bn of savings;

– established the OBR to audit the state of the public finances and provide unbiased forecasts;

– set a fiscal mandate to eliminate the structural current deficit by the end of the parliament;

– delivered a Budget which proved to the world that Britain now has the will, the determination and the resolve to live within her means.

Now, across government, we are working on the crucial next step that is the Autumn’s Spending Review.

There are already some early signs that our determined approach is working.

The international community has welcomed the Budget.

The G20 has recognised that those with serious fiscal challenges need to accelerate the pace of consolidation.

The OECD said that our Budget was “an essential starting point” which signals the commitment to provide the necessary degree of fiscal consolidation over the coming years…while still supporting the recovery.

At the same time market interest rates – the rates actually paid by businesses and families – are down by over half a per cent since the election.

That is a significant monetary stimulus for the British economy.

In other European countries, like Spain, these rates have not fallen.

Yet despite this, it would be fatal to become complacent or think that the job is done.

Investors at home and worldwide – the very people we are relying on to buy our gilts, and invest in our economy, and create jobs – are today waiting to see if we will deliver on our promises.

So imagine what would happen if those promises were abandoned altogether.

Even in the face of all this evidence there are still those who would have us change course and put at risk the very stability of our economy.

There seem to be two types of opponent to the Budget.

There are those who deny that any action was necessary.

That we could wait years even before setting out plans to reduce the deficit.

This group of critics would put themselves at odds with an international consensus which understands that the sovereign debt crisis is every bit as dangerous as the financial crisis of 2008, if not more so.

Just because government bailouts helped to calm the markets for now does not mean that the risks have gone away – they have simply been transferred from banks to governments.

Economic stability now depends on a credible plan to restore the public finances to a sustainable path.

To fail to do that would mean higher market interest rates and higher debt interest payments – hardly a foundation for growth.

There is a second group of people who opposed the Budget.

It is those who accept in principle that we must reduce the deficit, but then in practice oppose every cut that is suggested to achieve it.

Let me remind everyone of the numbers.

Under current plans, we are set to tighten the public finances by a total of £113 billion by 2014-15.

Of this, around £30 billion will come from tax measures.

£11 billion will come from welfare reforms announced at the Budget, and another £10 billion from lower debt-interest costs.

And around £61 billion will come from cuts to departmental expenditure.

But that already included £44 billion of cuts inherited from the previous Government.

But what was the plan to deliver these cuts?

Well, I’ve searched for it and I can tell you – there was no plan.

Out of that £44 billion not a single penny had been allocated to any significant public spending programme.

To say we must deal with the deficit, but refuse to say how, is simply taking the British people for fools.

People are debating these issues up and down the country.

Anyone who is serious about tackling the nation’s debts needs to come forward with an alternative plan.

Both those who deny the need to cut the deficit and those who refuse to say how to do it are placing themselves outside of the domestic and international debate.

And in becoming deficit deniers they are saying that they would set the country on a road to economic ruin.

We won’t do that.

So as we stick to the course of the deficit reduction we have set, the next challenge is to deliver the Spending Review that will restore the public finances to stability.

Let me update you on where we have got to.

Right now we are running a wide and inclusive public engagement programme to inform the Spending Review.

Our two dedicated websites have received over 100,000 ideas from people keen to help us find ways to make savings and transform the public sector.

We will shortly be asking the public to choose some of the best of those ideas.

Meanwhile, David Cameron and Nick Clegg have been holding open meetings across the country.

I have hosted a series of seminars with leading professionals in many of the different areas of government activity.

At the same time my colleague Danny Alexander has been meeting with coalition Ministers from across Whitehall to discuss their departments’ savings.

The Public Expenditure Sub-Committee of the Cabinet will start regular weekly meetings at the end of this month – and I look forward to more of my colleagues joining that group as their departments agree their settlements.

This Spending Review is a genuinely collective effort – collective around the Cabinet table and collective with the British public.

Difficult choices will have to be made.

Not just to make the sums add up – but so that this Spending Review is about more than making those sums add up.

As we take decisions that will affect the budgets of government departments and public services for years to come, we have to make sure that:

– we are shaping the economy of the future by promoting a pro-growth agenda;

– that we are shaping the big society of the future by decentralising power and empowering people;

– that we are shaping the public services of the future by reforming the public sector so it delivers value for money;

– that we are shaping Britain’s future role in the world through our review of defence and security.

It is not about how much the Government spends but about what the Government actually does with the money.

We want to be laying the future foundations for economic growth and for a fairer society.

Fairness and growth. Two guiding principles we will apply to the decisions Britain has to take.

Let me say something about each of them.

First growth.

Obviously some things Government spends money on make a far greater contribution to our long term prosperity than others.

It’s time we prioritised the former over the latter.

People can already see that we are following a ruthless approach to waste, inefficiency and bureaucracy in Government.

And if that means bringing in external expertise to help, of course we will do that.

We are determined to tackle soaring welfare bills – and to create a simpler benefit system that supports work.

And we will re-focus public spending in those areas that will make a difference to our long-term economic success.

We are looking at what lies behind the UK’s relatively weak productivity and asking whether Government can help.

How can we remove barriers to people and capital in a way that maximises returns on investment, encourages greater human capital accumulation, and promotes labour participation?

We all know that the Government can’t pick winners or transform the economy overnight.

But we can work with the private sector to identify the impediments to growth.

We can do this by asking ourselves how to go about:

– providing macroeconomic stability;

– removing uncertainty from the tax system and making business taxes more competitive;

– ensuring the banking system works for the good of the whole economy;

– enabling product markets to work efficiently;

– improving the planning system and the housing market;

– and supporting the most economically productive investment.

We have learnt the mistakes of the past.

That’s why the Budget included no further cuts to capital budgets.

We want to maintain the assets we have in good repair, and we want to provide the new infrastructure our country needs for the future.

And we will scrutinise every line of government spending, to identify those that will do most to promote sustainable growth and future prosperity, and which should therefore be protected, and those other areas where spending is less productive, and where savings can safely be made.

Only that way will the spending review promote a more balanced and sustainable model of growth.

While at the same time creating a society that is fundamentally fairer.

Fairness is the second guiding principle.

Let me start with this observation, which is at the core of what I believe.

Fiscal responsibility is both fair and progressive.

Governments that lose control of their public finances are the most unfair and unprogressive.

In recent decades, this is a lesson which has been learnt across the world, by politicians of both the right and of the left.

In the US it was Bill Clinton and the New Democrats who made the case for balanced budgets and deficit control in the early 1990s.

And during an economic recovery they eliminated the budget deficit and pushed ahead with deeply controversial welfare reform.

In Canada, Jean Chretien and Paul Martin took the necessary steps to bring their exploding deficit under control.

Or there is Goran Persson, the Swedish Social Democrat Prime Minister, who turned a 9% budget deficit into a 4% budget surplus.

In our own country’s history, it was James Callaghan who argued that you could not “spend your way out of a recession and increase employment by cutting taxes and boosting government spending”.

It was Roy Jenkins who warned that governments could not keep pushing up public expenditure and “maintain the values of a plural society with adequate freedom of choice”.

And it was that former Treasury Minister in the last government, Paul Myners, who reminded us again this week how he believes that:

– there is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation.

I repeat these observations because I reject entirely the false choice that some in the present political debate seek to establish between being responsible, and being progressive or fair.

Successful centre-left parties root themselves in a progressive belief that governments must live within their means, or the poorest suffer.

Those that do not – and find themselves arguing for investment over cuts – lose their way.

Of course, the choices made within a fiscal consolidation should also seek to be fair ones.

I believe the choices in the Budget, choices that included an increase in capital gains tax for higher-rate taxpayers and a new bank levy, were fair choices.

I believe the choices on public spending that we have already made, and that shape the entire spending review, are also fair ones.

We are protecting the National Health Service – which so many millions of families depend on – from real cuts.

That is a conscious choice. Our opponents object to it. They would cut the NHS.

We are also honouring – almost alone in the world – our commitments to raise the international aid budget to 0.7% of our national income.

Helping the world’s poorest is a conscious choice, which some oppose.

Both, I believe, are fundamentally fair choices.

But so too is our drive to reform welfare and provide a pupil premium for the most disadvantaged children – for fairness is about equality of opportunity too.

And fairness extends across the generations, for what is fair about forcing the next generation to pay for the debts of our generation?

We are all in this together.

And the spending review we will produce in two months time will show that.

Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, at the Mansion House in London on 16th June 2010.

My Lord Mayor, ladies and gentlemen.

It is humbling to speak here tonight conscious of the long line of distinguished Chancellors who have preceded me.

I have been looking back at some of their speeches for inspiration, and was particularly struck by what Austen Chamberlain said here at the Mansion House:

“Lord Mayor, the lot of the Chancellor of the Exchequer is not altogether a happy one.

He has few friends, and the few he has are those of whom he should most beware, for their approach is the most insidious, and their indignation if he refused their claims is the most marked and the most violent.”

Then I realised that he was the Chancellor in the last Liberal Conservative coalition.

Of course some have made comparisons with another former Chancellor, Lord Randolph Churchill, who took office in 1886 when he was 37 years old.

But he offered his resignation to his Prime Minister just four months into the job.  To his shock and surprise it was accepted.

That’s not a mistake I’m planning to repeat.

So rather than quoting Randolph Churchill, I’d like to begin with the words of his rather more successful son Winston.

For it was here at the Mansion House that he delivered one of his most famous lines:

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

He was talking to a country weary from three long years of war.

But his words could be said of the current situation as we approach the third anniversary of the beginning of the financial crisis.

So difficult has the economic situation been, so sharp has been the fall in output, so large have been the bailouts, that the cry has gone out: this time is different.

If only it were as simple as that.

For there is a well trodden path that has led, in different times of history and different places in the world, from a banking crisis to a sovereign debt crisis.

I am determined that Britain does not follow that path.

That requires conscious, determined action.

For the rapid and unsustainable increase in private sector debt that precipitated our current problems has not, for the large part been eliminated.

Instead much of it has been shifted from private sector balance sheets to the public sector.

And that is why we see now with countries like Greece that what began as a crisis of liquidity and then solvency in banking systems, has been succeeded by market fears about the solvency of some of the governments that stand behind them.

I do not want that question ever to be asked of Britain.

Our country has the highest budget deficit of any country in Europe, with the exception of Ireland.

Dealing with this inheritance from its predecessor is the single greatest economic challenge the new Government faces.

For what business will invest with confidence if they fear ever higher deficits will lead to ever higher taxes?

What family will spend with confidence if they fear ever higher debts mean ever higher interest rates?

That is why we have moved at a brisk pace in the six weeks since the general election.

We have announced, conducted and completed a review of this year’s spending and identified over six billion pounds of savings.

We have announced, established and received the report of the independent Office for Budget Responsibility.

The power the Chancellor has enjoyed for decades to determine the growth and fiscal forecasts now resides with an independent body immune to the temptations of the political cycle.

Budget making in Britain has been changed forever.

No longer will we fix the figures to fit the Budget.

From now on we will fix the Budget to fit the figures.

We saw those figures earlier this week.

Lower growth than forecast.

A higher structural deficit.

Debt set to still rise even at the end of this five year Parliament.

Annual debt interest payments that will soon exceed what we spend on schools and are almost double what we spend on defence.

And today’s labour market figures remind us that unemployment is still rising.

My Budget next week, held within fifty days of our coming to office, will deal decisively with these problems.

It will set out a credible plan to accelerate the reduction in the structural deficit.

It will determine the overall envelope for spending which our review this autumn will then allocate between departments.

We will hold the most far-reaching and open-minded exercise in public engagement on spending priorities that this country has ever seen.

The Budget will also create a fairer tax system.

And next week I will lay the foundation for a sustainable private sector recovery with measures to boost enterprise and job creation.

And I am confident that it will resolve beyond doubt the question that Britain can live within her means.

But Britain’s budget deficit is not the only issue that needs resolving.

The future of our banking and financial services has to be settled too.

The legacy of the crisis is a cloud of uncertainty hanging over your industry.

I believe that uncertainty has to be dispelled if we are to achieve our broader goals for the economy.

Uncertainty about how you will be regulated, who will do the regulating and what the institutions that are the subject of these regulations will look like.

That uncertainty is contributing to the other major concern I have about the British economy – alongside the deficit and the situation in the Eurozone – and that is the contraction of credit.

For uncertainty is leading to a hoarding of excessive capital instead of more lending to business.

It is making it more difficult for companies to plan for the future.

And it is undermining your efforts to go out there and succeed in the world, financing the businesses that need finance, garnering higher returns for savings and – given that I am replying to the Lord Mayor’s toast – bringing prosperity to the public purse.

So how do we resolve these uncertainties?

Not by wishing them away.

When a system of regulation fails so spectacularly people are going to ask what replaces it.

When the failure of certain banks have cost the country so much, people are rightly going to ask how to stop it happening again.

These debates are real. They are not simply going to disappear.

They are happening in workplaces and in homes across the country.

They are aired on television, written about in newspapers, brought up in Parliament.

And these debates at their root involve complicated and profound trade-offs between safety and risk-taking, between protection for the taxpayer and returns for the economy.

But we have to end the uncertainty, decide where we are going, how we’re going to get there and let your industry be clearer about its future.

This is how I propose we do that.

First, the question of the content of regulation.

The collapse of some of the largest banks in the world, including British banks, revealed just how ill-prepared they were to withstand losses.

And whether it was queues in the streets or the freezing of the interbank market, we were reminded that people can all want their money back at the same time.

It is now accepted that the centrepiece of the new global standards for bank regulation will involve higher capital and liquidity requirements, and that bank capital requirements should respond to the cycle.

This is what the G20 agreed to last year, but the actual standards have not yet been agreed.

The markets are already anticipating what they might be, and the banks are building up larger reserves to prepare themselves.

I believe we need to get on and resolve the uncertainty.

The G20 Finance Ministers and Central Bank Governors committed ten days ago to providing the details of the new capital, liquidity and leverage requirements by the meeting in Seoul in November.

We should honour that commitment and to my mind demand rigorous standards, even if that means an appropriate transition to those standards.

We should also demand the highest levels of transparency from banks, and encourage published stress tests where they have not taken place, for we know that concealing the truth is merely delaying the necessary adjustment.

I would also like to pay tribute to the work that Adair Turner is doing on our behalf in the international debate.

We also face uncertainty about the new framework for financial supervision in Europe, that needs to be resolved in the next few weeks.

As Europe’s cross-border financial centre, the City has an interest in strong mechanisms to underpin the single market, including better procedures in a crisis, stronger arrangements for mediation between supervisors and strict enforcement of the law.

But we must have safeguards in place to ensure that supervisory decisions that have an impact on national budgets remain at the national level.

My team are already playing an active and constructive role in Europe on all of these issues.

Lord Mayor, that brings me on to the uncertainty that hangs over the future of our domestic regulators.

That now needs to be resolved too, so that people and the institutions they work for can plan for the future.

As many of you know, I have my profound doubts about the tripartite system.

This is not a commentary on the quality or dedication of the staff of the Financial Services Authority, the Bank of England or indeed the Treasury.

It is instead a reflection on what has gone wrong and what may continue to go wrong unless there is change.

I should also take this opportunity to pay tribute to my predecessor Alistair Darling, who is here tonight.

Alistair, you worked very hard in difficult circumstances and, although we didn’t agree on everything, on behalf of everyone here I commend the service you gave this country.

At the heart of the crisis was a rapid and unsustainable increase in debt that our macroeconomic and regulatory system utterly failed to identify let alone prevent.

Inflation targeting succeeded in anchoring inflation expectations, but the very design of the policy framework meant that responding to an explosion in balance sheets, asset prices and macro imbalances was impossible.

The Bank of England was mandated to focus on consumer price inflation to the exclusion of other things.

The Treasury saw its financial policy division drift into a backwater.

The FSA became a narrow regulator, almost entirely focussed on rules based regulation.

No-one was controlling levels of debt, and when the crunch came no one knew who was in charge.

Some lessons have been learnt and some changes made, and I commend those who have led this process.

But despite the changes that have been made, I am still not confident that the fundamental problems of culture and regulatory structure have been confronted.

How do we ensure less box-ticking and more exercise of judgement?

What are the tools of macroprudential regulation and who should exercise them?

Can the macroprudential regulator do their job if they don’t have an intimate knowledge of what is happening in individual firms?

Our thinking is informed by this insight: only independent central banks have the broad macroeconomic understanding, the authority and the knowledge required to make the kind of macro-prudential judgments that are required now and in the future.

And, because central banks are the lenders of last resort, the experience of the crisis has also shown that they need to be familiar with every aspect of the institutions that they may have to support.

So they must also be responsible for day-to-day micro-prudential regulation as well.

That case is particularly strong where the banking system is highly concentrated as it is in the UK, where the boundary between micro and macro-prudential regulation is not easy to define.

In the agreement that forms the basis of this coalition government, we stated our intention to give the Bank of England control of macro-prudential regulation and oversight of microprudential regulation.

We have now decided how we will give effect to that intention, and the Financial Secretary Mark Hoban will set out the details to Parliament tomorrow.

What we are proposing is a new system of regulation that learns the lessons of the greatest banking crisis in our lifetime.

I can confirm that the Government will abolish the tripartite regime, and the Financial Services Authority will cease to exist in its current form.

We will create a new prudential regulator, which will operate as a subsidiary of the Bank of England.

It will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies.

We will create an independent Financial Policy Committee at the Bank, which will have the tools and the responsibility to look across the economy at the macro issues that may threaten economic and financial stability and take effective action in response.

We will also establish a powerful new Consumer Protection and Markets Authority.

It will regulate the conduct of every authorised financial firm providing services to consumers.

It will also be responsible for ensuring the good conduct of business in the UK’s retail and wholesale financial services, in order to preserve our reputation for transparency and efficiency as well as our position as one of the world’s leading global financial centres.

I can also confirm that we will fulfil the commitment in the coalition agreement to create a single agency to take on the work of tackling serious economic crime that is currently dispersed across a number of Government departments and agencies.

We take white collar crime as seriously as other crime and we are determined to simplify the confusing and overlapping responsibilities in this area in order to improve detection and enforcement.

I have thought longer and harder and spoken to more people about all these issues than almost any other issue to have crossed my desk.

We do not undertake these reforms lightly, and we do so only because we believe they are absolutely necessary.

We will handle the transition carefully, consult widely and get this right.

The process will be completed in 2012.

And I have asked Hector Sants to remain at the FSA to oversee the transition and become the first new deputy governor and chief executive of the new prudential regulator.

I am delighted that he has agreed.

He will be supported by Andrew Bailey from the Bank of England as his deputy in the new regulator.

This is a strong team to ensure a smooth transition.

Let me turn now to a final area of uncertainty that hangs over the financial services industry, and that is the very structure of the banking industry and the question: how can Britain be home to the most successful and global banks in the world, without the British taxpayer being exposed to the most unacceptable of risks?

Should we restrict or split the activities of banks?

Has our banking industry become too concentrated and uncompetitive?

Now I know there are some who are frustrated that these questions are even asked.

But how can they not be when so many millions of people are paying the price for what went wrong?

There are real issues of fairness.

And that is why we will introduce a bank levy and demand further restraint on pay and bonuses.

But there are also fundamental issues of protection for an economy still reeling from a crisis that in Britain saw the biggest bank bail out in the world.

There are passionately held views on all sides of informed opinion.

Some of the most fervent believers in free markets are the most ardent proponents of structural separation, including the man who more than almost anyone created the modern City of London – Nigel Lawson.

I have sat at this dinner in past and listened to the then Chancellor express one view, the Governor express another, while everyone knew the Prime Minister held a third and the regulator held a fourth.

This cannot go on. We need to resolve these issues and end the uncertainty in way in which everyone feels that they have had a chance to make their case.

That is why the new Government is establishing an independent commission on the banking industry.

It will look at the structure of banking in the UK, the state of competition in the industry and how customers and taxpayers can be sure of the best deal.

The Commission will come to a view. And the Government will decide on the right course of action.

Sir John Vickers has agreed to chair the Commission.

As a former Chief Economist at the Bank of England, member of the MPC and Chair of the Office of Fair Trading, I believe he is someone of unquestioned ability, experience and integrity who approaches this issue with an open mind.

He will be supported by four other commissioners, Martin Taylor, Claire Spottiswoode, Martin Wolf and Bill Winters.

The Government looks forward to receiving their report next year.

Lord Mayor, I have arrived in office with debates raging about all of these questions on regulation and the future of banking.

My job is to help our country resolve them.

They cannot be resolved overnight, but resolve them we must in a reasonable period of time and in a reasonable way.

The plan I have set out tonight represents a new settlement between our banks and the rest of our society.

A fairer settlement in which the banks support the people, instead of the people bailing out the banks.

And it constitutes a solid foundation on which you can plan for the future.

I believe that is what you need most of all in order to succeed and play your role in supporting the recovery.

Because you have a vital role to play.

The experience of the last three years means that fundamental reform is an absolute requirement.

We simply cannot afford to continue as we did before.

But at its best the City of London embodies the entrepreneurial energy, constant quest for innovation and global outlook that our economy needs in the years ahead.

As an economy we need to invest more, innovate more and export more if we are to build a more balanced and sustainable recovery.

And whether it is in insurance, legal services, accountancy, banking or any of the hundreds of other industries that make up this extraordinary global financial centre, you are perfectly placed to do all of those things.

That is one reason why, for all the difficulties we face, I am profoundly optimistic about the future of our economy and our financial services industry.

My very first foreign visit as Chancellor was to China, within three weeks of taking office.

There and throughout the developing world, nations of manufacturers are becoming nations of consumers, just as we did after our industrial revolution.

And they will want to buy savings products, mortgages, insurance services, fund management, shipping finance, accountancy and legal expertise.

They will need broking services, investment banking, private equity, venture capital, trading platforms and all of the financial services that go to support an advanced economy.

I want to help you to market British financial services around the world so that we are the first place they turn to.

And by resolving the raging debates that hang over your industry, I want to free you up so that you can focus your energies on what you should be doing: building your businesses, winning new clients and helping to create the prosperity that our country deserves.

Thank you.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor of the Exchequer, on 29th March 2010.

Good morning, and on behalf of myself, Ken and Philip, can I welcome you to the venue for our press conferences during the general election.

This will be the first of many such mornings we spend together here.

Today we’re going to talk about how a Conservative Government would get the British economy moving, by taking action on debt and boosting enterprise.

We’re going to draw a contrast with Labour’s debt, waste and taxes that risk pushing Britain into a new recession.

And, specifically, we are going to talk about our plans to avoid the most damaging part of Labour’s national insurance tax on working people and their jobs

And we’re also going to talk about our spending plans for the year about to start, 2010/11, and explain how they are connected.

We had to wait to see the Budget.

After all, it was always possible that Gordon Brown would recognise the damage that the full force of the national insurance tax rise would do to jobs and the recovery and the incomes of families – but he has not.

It was always possible that he would listen to the cries of business leaders, international observers and the rating agencies to make a start on dealing with the deficit in 2010, but he did not.

The Budget was empty.

There is no spending review for the years from 2011.

They have not even published the total departmental spending envelope for that year.

What we know is that Labour claim to have suddenly discovered that they have been wasting billions of pounds of public money in the government they have been running for the last 13 years.

£11 billion of waste, to be precise. As well as £5 billion of low priority programmes.

And we know that they don’t plan to do anything about this waste until next year.

So according to Gordon Brown’s logic, carrying on wasting money is crucial to securing the recovery.

We think this is wrong.

If we know the government’s wasting money, why don’t we stop it now?

Why don’t we reduce borrowing now, create confidence now, protect our country’s credit rating now?

Philip Hammond asked two of the members of our Public Sector Productivity Panel to advise us:

First, whether it was possible to undertake significant savings in government in 2010 without damaging frontline services.

Second, what were the steps that a new government could take urgently to find those significant savings.

I want to thank Sir Peter Gershon and Dr Martin Read for providing this advice.

Both of them bring not just impressive business experience, but also a very considerable knowledge of identifying waste in this government.

Sir Peter Gershon was, of course, commissioned by Gordon Brown to produce a major report on efficiency in 2004.

Dr Martin Read was until recently the head of the major IT supplier Logica, who was commissioned by Alistair Darling to produce a report on how to save on the government’s£35bn back office and IT budget.

It would be difficult to find two people more qualified to make the judgement about what savings can be made in 2010.

Peter Gershon and Martin Read have come back to us and told us that they believe that a sum of £12 billion pounds can be saved from the total of government department budgets in 2010.

Both say explicitly that this can be done without “reducing the quality of front line services”.

And they have set out the ways in which these savings can be achieved quickly, “with the right political will and managerial focus”.

Indeed, Martin Read believes that unless a government does this in 2010, it will not achieve larger savings in later years.

So the Chancellor’s own adviser says delay is not an option.

Philip Hammond will set out in more detail what both men recommend, and we are today publishing their advice to the Conservative Party in the interests of transparency.

Clearly, part of the £12 billion of savings will be found in the health service and in overseas aid.

We have made explicit commitments to protect these budgets, and so the money saved will be reinvested onto the frontline.

In the Ministry of Defence, we are conducting a strategic defence review this year and we don’t want to pre-empt that.  The existing plans for the defence budget will remain unaltered this year.

The other government departments together represent just over half of total departmental spending.

So we are expecting them to find, together, £6 billion of savings from the waste that even the government now admits exist – and which the government’s own efficiency advisers tell us can be found.

And let me be clear – not a single penny will come from the front line services that people depend on.

This £6 billion in savings – alongside the smaller savings we have identified by, for example, cutting child trust fund payments to the better off and stopping people with incomes over £50,000 receiving child tax credits – will be used to reduce the government’s borrowing requirement for the year 2010/11.

That £6 billion or so represents less than £1 in every £100 that the government spends.

Given the much larger savings that almost every business and ` many families have had to find from their own budgets in the last two years, it is not too much to ask.

No one can seriously argue that tackling waste is somehow going to damage the economy.

But from the conversations we have had with institutional investors and others, we believe it will make a start in reassuring those who fear Britain will lose its credit rating and restore confidence in our economy.

Identifying £6 billion of wasteful spending in 2010 is just that – a start.

We will hold this autumn the spending review which the Labour Government, with all their access to information, have so cynically refused to hold.

This will identify where larger savings and reforms can be made.

Some of the measures I announced at the Conservative Conference will take effect in 2011, such as the general pay freeze in the public sector that excludes the lowest paid million.

And we will have started by then to make real progress in reducing the size of Whitehall and the quangos by one third.

But identifying the £6 billion of savings in 2010 gives me the confidence that we can now say with certainty that we will be able to act more quickly on the deficit and at the same time avoid the most damaging part of Gordon Brown’s national insurance tax rise.

It also enables us to bring the share of dealing with our deficit accounted for by tax increases down from one third of the total towards one fifth.

As I said in January, this 80:20 split – 80% spending restraint, 20% tax increases – is what international evidence and the Treasury’s own internal analysis believes is the best balance for achieving sustained deficit reduction.

Labour’s National Insurance increase is a tax rise on working people who earn above £20,000 – roughly half of the working population.

It is a tax rise on almost all jobs.

It has been described by the CBI as a “serious mistake [that] will hold back job creation and growth”.

The Small Business Federation calls it “an attack on jobs” that “will cause deeper unemployment”, and cost 57,000 jobs in small and medium sized businesses alone.

Quite frankly, it is the economics of the madhouse.

Gordon Brown talks about securing the recovery.  He is taxing the recovery.

He talks about creating jobs.  Well, the businesses that create jobs say his policies will destroy tens of thousands of them.

He pledges to make families better off one day, and then hits them with a tax on their incomes the next.

And for what?  To pay for the very wasteful spending that the Labour Government themselves admit exists.

Gordon Brown may raise taxes on working people to pay for waste, but we will not.

We will take his national insurance tax plans and we will raise the primary threshold for employees by £24 a week and the upper earnings limit by £29 a week.

We will raise the secondary threshold at which employers start paying national insurance by £21 a week.

Compared to life under Gordon Brown, every national insurance payer earning between £7,100 and £45,400 will be up to £150 better off.

The tax on every single job with a salary of more than £5,700 will be reduced for employers by up to £150.

Under the Conservatives seven out of ten working people in Britain will be better off than under Labour – and nobody will be worse off.

People on lower incomes will receive a tax cut – indeed they will benefit the most as a proportion of their earnings.

People on middle incomes will avoid Labour’s tax rise.

Taxes on jobs will be lower.

The tax system will be fairer.

Jobs will be saved.

That is the way to secure a recovery.

And it shows, as this election approaches, the choice facing Britain.

The re-election of a Labour Government under Gordon Brown – with more debt, waste and taxes – will bring us a new recession.

Labour will kill the recovery with their tax on jobs.

We will cut Labour waste to stop it.

Seven out of ten working people will be better off with the Conservatives.

Because we believe we are all in this together – and we need new energy and fresh ideas to get Britain working for everyone.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor, on 2nd February 2010.

I believe that in the end all elections are about a choice between the future and the past.

As we emerge from the economic wreckage of the past decade, the British people are now looking for a different kind of future.

So today the Conservative Party answers this central question: where is the growth going to come from?

This is the question that will determine the future of:

– everyone that has lost their job in this recession;

– every business that is struggling to survive;

– and every family trying to get by with less than they had before.

The answer is a new economic model for growth – set out in detail in this important economic policy document that we are publishing today

As the last major economy out of recession, and with the weakest recovery in the G20, we need change to get our country back on its feet again.

We cannot go on with the old economic model of the last decade.

A model that depended on:

– a public spending boom we couldn’t afford;

– an overblown banking sector;

– and unsustainable consumer borrowing off the back of a housing bubble.

These were the shaky foundations of the age of irresponsibility that left Britain so badly exposed to this economic crisis.

They cannot be the sources of sustainable growth for the future.

We need new sources of growth.

Our new economic model will be built on long term saving and investment.

We want to see a private sector recovery driven by exports and enterprise.

And we want government to support this new economic model with a competitive tax system, modern infrastructure like superfast broadband, investment in green technology and lasting education and welfare reform.

Real support for wealth creation – not burdening the future to pay for today.

From the ashes of the debt boom we will build a saving society.

Now we’ve heard promises from politicians before.

“No more boom and bust”.

“Prudence with a purpose”

“Leading the world out of recession”

Even to repeat Labour’s promises invites ridicule.

So we today offer a new approach.

For the first time ever we are asking to be judged against eight clear and transparent benchmarks – Benchmarks for Britain – against which the public can judge the success or failure of their Chancellor and their Government over the next Parliament.

Let me take you through the eight Benchmarks for Britain that we are publishing today, as well as the concrete measures we will take to achieve them.

First, we will ensure macroeconomic stability.

Largest budget deficit in the G20, the largest in our peacetime history. Credit rating under threat.

Today, for the first time in our history, Britain’s credit rating is under threat.

Indeed, some commentators think a downgrade is inevitable.

That would mean higher interest rates on our national debt and throughout our economy could tip us back into recession, with more jobs lost and more businesses going under.

That’s why our first Benchmark for Britain is to…

…Cut the deficit more quickly to safeguard Britain’s credit rating.

I know that we are taking a political gamble to set this up as a measure of success.

Protecting the credit rating will not be easy.  The largest bond investor in the world thinks there is an 80% chance of a downgrade.

But the economic risk of not setting ourselves this benchmark is not one that I am willing take.

So we will set out a plan in our first budget to eliminate a large part of the structural deficit in the first parliament.

We will make a start in 2010.

The pace of fiscal consolidation will be co-ordinated with monetary policy.

And we will protect Britain’s credit rating and international reputation.

Our second benchmark is to create a more balanced economy.

The economy Gordon Brown built is severely unbalanced.

Investment as a share of GDP is the lowest of any G7 country.

Global export market share is falling as Germany’s rises.

Growth is driven by public and private debt.

The next decade must look very different.

A sustainable recovery must be built on exports, business investment and saving.

So we set this tough benchmark.  We want to see:

Higher exports, higher business investment and higher saving as a share of GDP.

Under Gordon Brown, all of those things fell as a proportion of national income.

The document we are publishing today sets out how in detail we will achieve a change of direction, with more support for exports, lower corporation tax rates, an attack on excessive regulation and measure to restore our savings culture.

Our third benchmark is to get Britain working.

We have the highest youth unemployment ever.

There are more children living in workless households than any other European country.

Child poverty is rising.

Despite Gordon Brown’s pledge in 1997, youth unemployment has hit record highs under Labour.

And despite Labour’s pledge to make work pay, more children live in workless households than in any other European country.

We can’t go on like this.

So our benchmark is

Lower youth unemployment.

Fewer children living in workless households.

Our plans will help more people into work, support new businesses that create jobs and provide young people the skills they need to succeed.

But we know that ultimately it is businesses that create jobs.

That’s why our fourth benchmark is to make sure that Britain is open for business.

Britain struggling to compete.

The UK ranking on government regulation has fallen from 4th to 86th, and on the burden and effect of tax it has fallen from 4th to 84th.

Those rankings are truly shocking – and we will turn things around.

Our benchmark is to:

Improve Britain’s global rankings for tax competitiveness and business regulation

Our proposals to simplify taxation and combat excessive regulation will set businesses free to compete.

Because enterprise is the only source of sustainable growth.

Over the last decade, growth hasn’t been evenly shared around the country.

Growth in the rest of the UK has lagged behind the South East.

The private sector’s share of the economy has fallen in every region, but especially outside London and the South East.

We need to change that, so our fifth benchmark is to ensure that the whole country shares in rising prosperity.

We will raise the private sector’s share of the economy in all regions of the country.

With a high speed rail network, with super-fast broadband, and with really effective local support for businesses we can make this a reality.

But given the state of our public finances we also need the public sector to deliver more for less.

Over the last decade it’s been less for more in too many parts of our public sector.

We have seen public sector productivity falling since 1997.

So our sixth benchmark is to reform public services to deliver better value for money.

Our reforms will change that, by increasing diversity of provision, extending payment by results, giving more power to consumers and improving financial controls.

Our benchmark is:

Higher public sector productivity and better value for money.

The financial services sector is one of our global success stories, and we want it to stay that way.

But because of a massive failure of regulation it has put our whole economy at risk.

UK banks were more leveraged than American banks.

We saw the biggest bank bailout in the world.

And still small businesses are struggling to get credit.

We must learn the lessons of the crisis, instead of carrying on much as we did before.

That’s why our seventh benchmark is to create a safer banking system that serves the needs of the economy.

We lower leverage.

Less dependence on unstable wholesale funding.

More credit to small businesses.

So we will abolish the failed tripartite system of regulation and put the bank of England back in charge, and we will pursue international agreement on reforms to protect taxpayers.

Finally, we need a recovery that is sustainable environmentally, not just economically.

I believe that this can be a huge opportunity – greening our economy can be a win-win solution.

But over the last decade it’s been lose-lose.

We see higher emissions than 1997 – and Britain has just 5% of the global market for green goods and services.

So our eighth benchmark is to turn both of these things around.

We will see lower emissions and a rising global market share for low carbon technologies.

With the Green Investment Bank that we are announcing today and new incentives for energy efficiency investments, we can create high quality jobs and cut our emissions at the same time.

I am delighted that Lord Stern has agreed to advise us on the creation of this Green Investment Bank.

These are the Benchmarks for Britain.

Benchmarks that will guide the next Conservative Government as we build a new, more stable, more balanced economy.

They mean more jobs, more savings, more enterprise.

Borrowing from China so that we can buy the goods they make for us may be Gordon Brown’s idea of the future, but it is not ours.

We want Britain to be selling to China and the world.

Judge us by these benchmarks.  Hold us to account.

We will be accountable.

The whole country will see as we Conservatives rebuild our economic house on more solid foundations.

Now this cannot be achieved be government alone.

We need a whole national effort that brings together government, business and individuals.

Over the next few months we will be seeking support for our plans from British businesses.

The message is clear.

Britain cannot afford five more years of Gordon Brown.

Instead, business is backing Conservative plans to put Britain back on her feet.

As the election approaches, it’s clear that Gordon Brown will say anything and spend anything to cling on to power.

The man who failed to fix the roof while the sun was shining, and took Britain into the deepest and longest recession for generations, cannot be trusted to take us out of it.

Like every Labour Government, this one is ending by running out of money.

Britain cannot afford five more years of Gordon Brown.

So the choice at the election could not be clearer.

Five more years of Gordon Brown, or change to get Britain back on its feet.