Osborne: Without action UK "on the road to ruin"

On Sunday 20 June Andrew Marr interviewed Chancellor of the Exchequer George Osborne MP.

Please note 'The Andrew Marr Show' must be credited if any part of this transcript is used.

Chancellor of the Exchequer George Osborne MP

ANDREW MARR:

Tuesday is of course also the day of the emergency Budget. And with that in mind, I'm joined now by the Chancellor of the Exchequer, George Osborne. Welcome, Chancellor. First of all, is it all done? Is it settled? Is it signed off?

GEORGE OSBORNE:

Well actually the Budget measures, what's in the Budget, is largely signed off. And we had a meeting on Friday with David Cameron and Nick Clegg and Danny Alexander, the Chief Secretary to the Treasury, and the measures are all agreed. And in fact the creation of this independent Office for Budget Responsibility forces chancellors now to take these decisions some days before the Budget, rather than doing it the night before, which has been the case in the past.

ANDREW MARR:

It sounds like there's bits of it that are not completely nailed down.

GEORGE OSBORNE:

Well the only thing I haven't got is the speech yet, but after this interview is finished I'm going to go and write the speech.

ANDREW MARR:

Right, okay. Okay, how bad is it going to be because we've had all sorts of lurid sounding language. We have all sorts of predictions of a £30 billion squeeze or a £40 billion squeeze. So just give us a sense of the badness.

GEORGE OSBORNE:

Well I don't see it as badness. I see it as decisive action to deal with Britain's record budget deficit. And we sit here as the country in Europe with the largest budget deficit of any major economy, at a time when markets and investors and businesses are looking around the world at countries that can't control their debts. And so we've got to deal with that. In that sense, it's an unavoidable budget. But what I'm determined to do is to make sure that the measures are tough, but they're also fair and that we're all in this together, and that as a country we take the steps necessary to actually provide the prosperity for the future.

ANDREW MARR:

So when you say "we're all in it together", the people right at the top of the tree, the people who've been getting huge bonuses - the banks and bank people and so on, people in the private sector - are they going to be stung alongside all the public sector workers who are going to lose their jobs?

GEORGE OSBORNE:

Well that's a very pejorative question - "stung", "losing jobs", etcetera.

ANDREW MARR:

Well they are going to lose their jobs, some of them.

GEORGE OSBORNE:

What we're clear about is that all parts of society are going to have to make a contribution. And, yes, we have to deal with the costs in the public sector, but we also have to deal with the fairness of the banks making a contribution. Now the previous government didn't want a bank levy because they wanted every country in the world to sign up to one before they would agree to one in Britain. I don't think that's fair and I'm going to ask the banks to pay a bank levy, so there will be a contribution from them. Controversial in my own party is our decision to raise capital gains tax, and we'll have more to say about that in the Budget. So we are …

ANDREW MARR:

(over) Sorry, just on the bank levy. I mean it is definitely - a) it's definitely going to happen; and b) I think the Lib-Dems were talking about sort of 10% or so of profit. Is that the area that you're looking at?

GEORGE OSBORNE:

Well you're going to have to wait for the Budget …

ANDREW MARR:

I thought you might say that.

GEORGE OSBORNE:

… for specific tax measures. But you know I stood up at the Mansion House in front of all the bankers in the City of London last week, and I said very clearly there was going to be a bank levy. We were going to have better regulated banks. It was going to be tougher regulation. And we're also going to look at the structure of banking. So I'm perfectly prepared to say tough things to the financial services community, understanding that we want a very competitive and successful financial services community but not one that ends up being bailed out by the taxpayer. So there are a range of decisions we need to take. But let's be clear, as a new government we have inherited a truly awful financial situation. No incoming chancellor has ever faced a set of public finances like this. And unless we take the determined and concerted action to deal with that, then I'm afraid we will find our country on the road to ruin. We will find higher interest rates, businesses going bust, unemployment rising and our living standards declining, and I'm not prepared to put up with that.

ANDREW MARR:

There are two sort of ideas about the way people have spoken ahead of this Budget. One is that there's a lot of sort of very grim talk - including from the Prime Minister - and then actually it won't be so bad on Tuesday and, therefore, it will draw a sigh of relief. Or conversely that you're really going to go for it in this Budget. You've decided that right at the beginning of a new parliament, with the mandate and all the rest of it, is the time to deliver the toughest things that you have to do. Which is it?

GEORGE OSBORNE:

Well it will be a Budget for the parliament. It's not just a budget for one year. This is going to set out measures that will take effect over a four year period. But as well as paying for past mistakes, it also plans for the future and it sets out policies that I believe will create a more balanced economy where we don't just rely on one industry, financial services for our growth; we don't have all the prosperity concentrated in the South Eastern corner of our country; where all sections of society share in that prosperity; we don't leave 5 million on out of work benefits. So as well as paying for these past mistakes - which we've got to do as a country, and I think most people understand that - it also I hope lays the foundations for a much stronger and more balanced economy in the future.

ANDREW MARR:

So after Tuesday's announcements, we will know, will we, what your plans are for the deficit reduction over those five years? It will be further and faster; it will be I don't know, question mark, most of the deficit. There's been a suggestion that all of the structural deficit - the sort of hard core that's left after the ups and downs of the cycle, all of that you would like to get rid of in this five years.

GEORGE OSBORNE:

Well people will have to see my fiscal mandate when I deliver it on Tuesday …

ANDREW MARR:

(over) But in broad terms.

GEORGE OSBORNE:

Look in broad terms what we will do is set out our five year plan to deal with the deficit, to put beyond doubt the question that Britain can live within her means. And I think people should judge this Budget not just on the day after it's delivered - of course they will pass judgement then - but also in the years to come and whether it laid the foundations for prosperity, for a country that can live within its means, for a more balanced and equitable economy.

ANDREW MARR:

Before the election, you said that you were going to go "further and faster" than Labour would have done in their plans. Is that still the case?

GEORGE OSBORNE:

Yes, we will go further and faster. There'll be an accelerated reduction in the structural deficit. By the way, that is what the G20 now recommends for countries with high budget deficits, and there are few with a higher budget deficit than Britain. So we will be taking that action. It's very important by the way in the world that countries with surpluses, like China, also play their part in stimulating demand in the economy. We need a more balanced global economy, but unfortunately Britain is in a position where it borrowed more than anyone else, its banks were more leveraged than anyone else, our consumers borrowed more than anyone else, and we have got to deal with those debts today.

ANDREW MARR:

Before the election again, you said that you wanted to deal with this on a sort of 80% tax … 80% spending reductions versus 20% tax rises proportion. Is that still broadly the proportion that you want to see?

GEORGE OSBORNE:

I think that is a good rule of thumb. I mean obviously it doesn't have to be exactly 80/20.

ANDREW MARR:

No, but roughly.

GEORGE OSBORNE:

I mean that I think is a good rule of thumb. That is what other countries have done when they have successfully tackled large deficits. In the end Britain's problem came from overspending. We didn't have the money to spend in the way that we did and we went into the recession, into the banking crisis …

ANDREW MARR:

Yes.

GEORGE OSBORNE:

… with the largest structural deficit. We didn't fix the roof when the sun was shining, so that's why we've got to deal with the spending problem. And I think that mix is a broadly correct one.

ANDREW MARR:

On the tax side. I know you can't go into details, but is VAT a regressive tax?

GEORGE OSBORNE:

Well I'm not going to get into a discussion of individual tax measures because I don't think …

ANDREW MARR:

Okay.

GEORGE OSBORNE:

I mean the price of coming on a programme like this just a couple of days before you deliver a Budget is that you can't answer certain questions.

ANDREW MARR:

We ask polite and reasonable questions.

GEORGE OSBORNE:

But you know I thought it was important to set out the broad approach we're going to take, our priorities, and making it clear to people yes there will be tough decisions but they will be done in a fair way. And the object here is a much more prosperous and secure economy.

ANDREW MARR:

Okay, I understand that. But in terms of some of the more extreme ideas about VAT up to 25% or indeed some of the fears of your own backbenchers about capital gains tax, can you reassure anybody at all on any of that?

GEORGE OSBORNE:

(laughing) Well, again, I'm not going to drawn on …

ANDREW MARR:

No, no.

GEORGE OSBORNE:

… individual taxes. With capital gains tax, you know what we've said is we want to protect business assets - that's important - and here is a tax where at the moment we see massive income tax evasion. We see people shifting their income. These are very rich people who often shift their income from income tax where they'd be paying 40 or 50% to Labour's capital gains tax rate of 18%. And that's not fair given the current situation, so we'll deal with that. As I say, the whole object here …

ANDREW MARR:

(over) The Prime Minister said he didn't come into politics to clobber people for doing the right thing.

GEORGE OSBORNE:

Well what I came into politics for and what David Cameron came into politics for is to have a society which is based on a secure and strong economy, where the gains of that economy are equitably distributed across society; where wealth is not concentrated in one part of society or one part of the country. And with our partners now in this coalition, that is what we will deliver.

ANDREW MARR:

A lot of your own backbenchers, however, want some kind of help for people whose you know life savings may be affected by this, who have spent all their lives saving - some kind of taper, some kind of help for people who really have done the right thing.

GEORGE OSBORNE:

Well of course you know I've listened to a lot of representations on this issue and lots of others, and one of the things I've tried to do in the seven short weeks that I've been Chancellor is have a completely open door. People have been able to come and see me, members of parliament. I've been speaking to business organisations, trade unions - all sorts of other people.

ANDREW MARR:

So you're listening?

GEORGE OSBORNE:

So I'm listening. Of course I've then got to make a judgement with my colleagues in the cabinet and people will hear that judgement on Tuesday.

ANDREW MARR:

Can I ask you about the 80% then, as it were, on the spending side? The Prime Minister said three huge areas - public sector pay, public sector pensions and welfare - you couldn't ignore those areas simply because of the size of the spending involved in those. Can I just take them one by one? Public sector pay. You announced before the election that you were going to go for a public sector pay freeze of a year. You've just said that we're talking about a whole parliament. Could we see a public sector pay freeze therefore go on for beyond a year?

GEORGE OSBORNE:

Well again you're going to have wait for my Budget. But we did make it clear there would need to be pay restraint in the General Election. And let's be clear, the reason for doing this is to a) put the economy on a sounder footing; but also to protect jobs in the public sector. (Marr tries to interject) But I mean the trade off that many people in the private sector have made over the last couple of years is to accept things like pay freezes in return for trying to protect jobs, and you see that in car plants across the country and in other private sector businesses. And I think people in the public sector understand that. I think people in the public sector understand that pay restraint is a way of protecting jobs, and of course we want to protect jobs above all else.

ANDREW MARR:

What about the Pensions Bill because as things stand - and I know it's a slightly controversial figure - but some people say that the bill for public sector pensions is going to triple to about £9.5 billion within five years, and that that would clearly be unsustainable. Have you got any plans to deal with this?

GEORGE OSBORNE:

Well the public sector pension bill is unsustainable, and the Office for Budget Responsibility, this independent body we've created, has shown that. We do have to tackle it. We do have to tackle it, but again I want to do this in a way where everyone feels they've had a chance to contribute, to have their say. So we're going to be establishing an independent Pensions Commission, and that independent Pensions Commission is going to be chaired by John Hutton, the for…

ANDREW MARR:

A Labour minister?

GEORGE OSBORNE:

… the former Labour Work and Pensions Secretary, former Labour Defence Secretary. He is a man with real intelligence and knowledge in this area. I think he's going to bring a cross-party perspective to what is a national problem and means that this is not going to be done a partisan basis. Having John Hutton on board, chairing this independent Pensions Commission, will I think mean that we can approach this issue of public sector pensions in a fair and equitable way.

ANDREW MARR:

Some people watching will say ah, another commission. He's kicking it into the long grass.

GEORGE OSBORNE:

No, I'm not kicking it into the long grass. John Hutton will report in September on early steps we can take to save costs in public sector pension provision; and then by the next Budget, next spring, he will set out recommendations for longer term reforms of public sector pensions. We want to balance the entirely legitimate desire of people in the public sector to have a decent retirement, which I want to protect, and we're certainly to protect accrued rights, but also something that's fair for taxpayers across the economy. And dealing with that division, that disparity between private and public sector pension provision is a very important part of keeping our country together in the years ahead.

ANDREW MARR:

It is a very difficult thing to do though. I mean, first of all, can we be clear that quite a lot of public sector workers or employees who feel … who think at the moment they have got a pension of a certain size waiting for them down the line will find that it's a smaller pension?

GEORGE OSBORNE:

Well first of all we're going to protect accrued rights, and it's very important that we establish that right from the off.

ANDREW MARR:

Because you could be legally challenged if you didn't.

GEORGE OSBORNE:

Well it's very important for reasons of equity that we protect accrued rights. But we are going to look at the sustainability and affordability of public sector pensions going forward. Again this is not an issue that can be ignored. I mean I know perhaps if you had one of the Labour leadership contenders here, they'd say this is outrageous, we don't need to deal with this. You know they are not telling you the truth. This is a real problem for our public finances, for taxpayers across all generations going forward, and we've got to deal with it. And having John Hutton, a former Labour cabinet minister with real experience in this area, ensures that it is going to be approached on a cross-party basis and everyone is going to have their chance to have their say.

ANDREW MARR:

You've talked a lot about fairness and bringing people with you and everybody being in it together, but in the end you will have to be announcing some pretty brutal decisions, won't you on Tuesday, if you're going to convince the markets that you mean business?

GEORGE OSBORNE:

Well I think they are necessary decisions. I think the country understands that we can't go on piling up the debts. We can't have this manana attitude, which is we're going to deal with this problem next year. We see what happens to countries that don't face up to their problems. You can see in Greece the example of a country that didn't face up to its problems. And that is the fate that I want to avoid, and I am absolutely clear I don't want the question even asked can Britain pay its way in the world. I'm going to prove on Tuesday that we can, and then we can go on and create that more balanced economy which I think will bring prosperity for all.

ANDREW MARR:

And to put it personally, you will be a very unpopular man among a lot of people. There will be huge protests of some kind no doubt over the years ahead. Do you have the steel to go through with this? Are you going to be as tough as Margaret Thatcher's chancellors were - Geoffrey Howe in particular - when he came in, in 1979 and the party and the leadership went through a very, very hard time indeed?

GEORGE OSBORNE:

I'm committed to doing what is the right thing. What's the point of doing a job like this? Not to chase tomorrow's headlines, not to chase the 24 hour news cycle. It's to do what you believe is absolutely right for the long-term future of this country, and that is what I am determined to do on Tuesday. I'm not courting popularity or unpopularity.

ANDREW MARR:

And do you have the steel to sort of face down massive demonstrations and all the rest of it?

GEORGE OSBORNE:

I think people can make an early judgement on the last six or seven weeks. They've seen that I've delivered on what I promised - an independent scrutiny of the budget figures; in year reductions in spending; dealing with all the IOUs and the morass of unfunded spending commitments we inherited. Now we've got a Budget that will deal decisively with our deficit and put this issue beyond doubt.

ANDREW MARR:

Your critics - and there are many economists as well as politicians - say that you are taking an enormous risk with all of this and that although the Budget … the deficit has to come down, you may very well push the economy back into recession. And once you push it back into recession, the unemployment bill rises and you go into the downward spiral. If there are signs that that is happening, will you change course?

GEORGE OSBORNE:

Well, look, the greatest risk to the British economy at the moment is the sovereign debt risk. That's what's stalking the European economies at the moment. That's what you read about when you pick up your newspapers every morning, and it's a real threat. And we've got to deal with that risk and we can't put off this decision of how we deal with our debts. Now the package that I announced on Tuesday will be staggered over the parliament. It doesn't take effect in one day or one month. It's staggered over the parliament. It is a Budget for the parliament. But it deals with our problems and in the end …

ANDREW MARR:

(over) But have you room for flexibility to change course, if necessary? If the economy starts to contract sharply, there's a problem with demand in Europe, unemployment is shooting up, can you look at this again?

GEORGE OSBORNE:

This is a plan to deal with our deficit. We set a clear fiscal mandate across the parliament. And I'm absolutely clear Tuesday's got to be a moment when Britain looks itself in the face and says we are going to deal with the problems of the past, we are going to pay for the bills of the past and we're going to plan for a brighter future. And that's what this Budget is about.

ANDREW MARR:

And inevitably, given your figures and plans, many people on benefits are going to find that they either find their benefits frozen or, in many cases, going.

GEORGE OSBORNE:

Well I'm not going to preempt again the announcements on welfare, but we have to tackle this welfare bill. It has got completely out of control in recent years. And what I want to do is reward work. I want to support the person who leaves their house at six or seven in the morning, goes out and does perhaps a low paid job in order to provide for their family and is incredibly frustrated when they see on the other side of the street the blinds pulled down and someone sitting there and living on a life of out of work benefits.

ANDREW MARR:

So this is not simply because of the situation you inherited. This is something you think is right to do anyway?

GEORGE OSBORNE:

Well we've got to have welfare reform. It is completely unacceptable that we condemn 5 million people in this country to a life on out of work benefits, and we've got to tackle welfare reform. We've also got to tackle welfare bills because that is such a big component of government spending.

ANDREW MARR:

Alright, George Osborne, Chancellor, a big week ahead of you. Thank you very much indeed for coming in this morning.

GEORGE OSBORNE:

Thank you.

INTERVIEW ENDS

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