Speech by the Chancellor of the Exchequer, Rt Hon George Osborne MP, at the Queen's Speech economy debate

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Speech by the Chancellor of the Exchequer.

Please note that parts of this speech have been removed due to their political nature. A full transcript of the Chancellor’s speech will be available on Hansard from 9 June (opens in new window).

Mr Speaker, let me start, as this is my first substantial opportunity to do so, by paying tribute to the Right Honourable Gentleman for the service he gave our country as Chancellor.

He did the job in difficult times, did it with the best of motives, and although we often disagreed with each other, he was always courteous to me.

I thank him for that - and thank him for the fact I have inherited a Treasury machine far less chaotic and far more functional than the one he inherited from his predecessor.

Can I also wish another member of his shadow team well?

The Right Honourable Member for East Ham suffered the most horrific attack in his constituency surgery and I am very glad to hear that he has already appeared back in Parliament.

But it is good to see the Right Honourable Member the Shadow Chief Secretary in his place.

[…political content…]

But getting over a £156 billion deficit is not so easy.

Getting over the worst economic inheritance any modern government has been bequeathed by its predecessor is not so easy.

That is the backdrop to this Queen’s Speech and the debate that ends today.

I have just returned from the G20 meeting in South Korea where I was representing the country with the worst budget deficit of any sat round the table.

Our national debt has doubled and is set to double again in the space of just five years.

Those who believe that this is some abstract problem should pay heed to warning noises from the European continent.

Countries that cannot live within their means face higher interest rates, greater economic shocks and larger debt interest bills.

Consider this one fact, which the previous Chancellor refused to publish, but which we have.

On the spending plans we inherited, British taxpayers are going to be paying out £70 billion in debt interest a year by the end of this Parliament.

£70 billion. That is more than we spend on educating our children, defending our country or policing our streets.

[…political content…]

The deficit is our most pressing national problem, but it is symptomatic of deep rooted problems that have been ignored for too long.

Our economy has become deeply unbalanced.

Unbalanced between different parts of the country, as the gap between the wealth of regions has widened over the last ten years.

Unbalanced between different sections of society, as a higher proportion of our children grow up in workless households than any other advanced society on earth.

Unbalanced between different parts of our economy, as the public sector booms to half our national income, while the private sector struggles out of recession.

This Queen’s Speech, with its landmark reforms of welfare and education, begins the task of righting these wrongs.

We will hear more from the Right Honourable Member for Chingford later, who has done more than almost anyone to highlight the trap of low aspiration, poor education and welfare dependency that our fellow citizens don’t deserve and our country cannot afford.

The five Treasury sponsored Bills in the Queen’s Speech play their part too in sorting out the country’s economic mess.

There is the National Insurance Bill, so that we stop the jobs tax that the other side would impose.

[…political content…]

Our reforms to national insurance will not just stop the most damaging part of this jobs tax, but by raising employer thresholds we will actually reduce the cost of employing people on lower incomes.

In the Budget there will be further measures to stimulate private sector employment and proclaim to the world that Britain is open for business.

Then we have the Financial Services Regulation Bill, to fix the previous Government’s system of banking regulation that failed so spectacularly.

I will say more about the details of this legislation at the Mansion House next week, […political content…].

Under this Government our banks will serve the economy instead of enslaving it.

And we are urgently working to ensure that in serving the economy, they lend to the small and medium businesses who for the last two years have faced such a shortage of credit.

There is a Terrorist Asset Freezing Bill, to put the vital work of disrupting the finances of those who would do us harm on a secure legal footing after the previous Government’s arrangements collapsed in court.

Then there is the Bill that should have been introduced by the previous Government years ago - and it is to their eternal shame that it was not.

The Equitable Life Payments Bill, to help those who lost everything and have been given nothing by the party opposite.

And finally there is our Bill to give the independent Office for Budget Responsibility statutory authority and to bring transparency and honesty to our nation’s finances.
It is a revolutionary step in budget making, removing forever the Chancellor’s historic power to make the official forecasts.

Yet it is based on a very simple idea, completely alien to the thinking of the previous Government: that in future we fit the budget to fit the figures, instead of fixing the figures to fit the budget.

I have already established, with the help of Sir Alan Budd, the Office for Budget Responsibility on a non-statutory basis - because I wanted all of us to get independent forecasts before the first Budget.

I am today publishing by Written Ministerial Statement the terms of reference that I have agreed with Sir Alan.

With his consent, I can also confirm in this House for the first time that the Office will produce its independent assessment of the growth forecast and other forecasts next Monday 14th June.

The Budget will be presented just over a week later, well within fifty days of the election - as we promised.

We have called it an emergency Budget, and indeed it will address the immediate debt situation this country faces.

But it will also begin the long term task of moving an economy built on debt to an economy where we save and we invest and we export and we spread the growth more widely.

If anyone needs reminding what the immediate debt situation we have inherited is, then I suggest they read the report on the United Kingdom published today by the credit rating agency Fitch.

They warn of “a rise in public debt … faster than any other AAA rated sovereign [country]”.

They point to “the largest cyclically-adjusted budget deficit in Europe”.

And what does this rating agency say about the previous Government’s plans to reduce this deficit we’ve inherited alongside this economic mess.

They say they’re “distinctly weak”.

They say they lack “credibility”.

They say we’re the only European economy set to run a budget deficit above 3% in five years time.

This is all at a time when they point out that the fiscal crisis in Greece has caused a major shift in investors’ attitude to sovereign risk.

Something we have long warned would happen.

And that is why they say a “more ambitious deficit reduction plan” is needed to help “underpin market confidence” in Britain.

That is today’s report.

It comes on top of similar reports from the European Commission, from the OECD, from the investors we rely on to buy our gilts, from business organisations, from the Governor of the Bank of England, and now - as of this weekend - from the G20.

The communique signed in South Korea by the world’s leading economies is clear.

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation”.

So that is the situation the last Government bequeathed to Britain.

The biggest budget deficit in the developed world, when the whole world is looking at the size of budget deficits.

Spending plans that nobody believes are credible, when market credibility is today everything.

[…political content…]

I notice that the Shadow Chancellor’s amendment notes “the need for a clear plan to bring down the deficit”.

[…political content…]

Let me explain how we propose to do that.

Alongside other measures to support the recovery, the Budget on 22nd June will set out the overall mandate for bringing the deficit under control, against which the Office for Budget Responsibility will judge the Government’s fiscal policy.

It will set the overall envelope for spending, but it will not allocate spending between departments.

That is what the Spending Review this autumn will address.

Today, I am placing in the Library of both Houses a paper that explains how the Review will work.

Given the scale of the spending reductions required, it needs to be quite different from any Review we’ve seen in this country before.

For the last thirteen years, Spending Reviews have been, shall we say, not exactly collegiate affairs.

More of a one way process.

The Treasury told departments what they were getting and precisely what they should do with the money.

No room for innovation, no acknowledgement that some of the best ideas for doing things differently might come from the front line and not from the centre.

And the result of this top-down, centre-knows-best approach?

Falling public sector productivity and the largest budget deficit in our history.

Less for more.

We cannot afford to continue in that direction.

Instead we need to look to Canada and their experience in the 1990s when they too faced a massive budget deficit.

They brought together the best brains both inside and outside government to carry out a fundamental reassessment of the role of the state.

They asked probing questions about every part of government spending.

They engaged the public in the choices that had to be made.

And they took the whole country with them.

This Government will do the same.

We are committed to carrying out Britain’s unavoidable deficit reduction plan in a way that strengthens and unites the country.

The Spending Review will be guided by the principles of freedom, fairness and responsibility.

It will deliver the Government’s commitment that health spending will increase in real terms in each year of the Parliament, and we will honour the promise we as a people made to the developing world on overseas aid.

It will limit as far as possible the impact of reductions in spending on the most vulnerable in society, and on those regions heavily dependent on the public sector.

And it will protect as far as possible the spending that generates high economic returns - so we build the economy of the future while cleaning up the mess of the past.
In short, it will demonstrate that we really are all in this together.

Let me set out how it will work.

First, we will build on the in-year savings that we have already made in order to deliver a step change in the drive for efficiency and value for money in the public sector.

The new Efficiency and Reform Group at the heart of government will support departments to deliver savings in specific areas, including renegotiating contracts, maximising collective buying power and using benchmarking to improve performance.

Departments will be asked to reduce administrative spending in central Whitehall and quangos by at least a third.

Each Secretary of State will appoint a Minister with specific responsibility for driving value for money across their department.

And we will embed strong financial discipline at all levels of government, by placing an obligation on public servants to manage taxpayers’ money wisely and by strengthening the role of the departmental Finance Director.

Second, the Spending Review will challenge departments, local government and others to consider fundamental changes to the way they provide public services.

As part of this process every part of government and every spending programme will have to answer a series of probing questions:

  • Is the activity essential to meet Government priorities?
  • Does the Government need to fund this activity?
  • Does the activity provide substantial economic value?
  • Can the activity be targeted to those most in need?
  • How can the activity be provided at lower cost?
  • How can the activity be provided more effectively?
  • Can the activity be provided by a non-state provider or by citizens, wholly or in partnership?
  • Can non-state providers be paid to carry out the activity according to the results they achieve?
  • And can local bodies as opposed to central government provide the activity?

The answers to these questions will inform a fundamental reassessment of the way that government works.

To deliver this will require the input of the brightest and best that Britain has to offer.

So we will bring together a group of experts - a “brains trust” from within government and outside - to act as independent challengers and champions for departments throughout the process.

I want the best civil servants helping us in this collective effort, not defending their Whitehall silos.

I want the inspirational head teacher, the farsighted police chief, the nurse with new ideas about solving age old problems.

Their remit will be to innovate, to challenge entrenched ways of doing things, and to identify the best ideas from around the world.

And in order to ensure that the resulting reform programme is achieved, we will establish robust mechanisms to ensure accountability to the public.

Third, the Spending Review will cover the large cross cutting areas of government spending.

We will set out our plans to reform the welfare system, and to restrain the cost of public sector pay and pensions.

For capital spending, we will undertake a fundamental review of spending plans to identify the areas of spending that will achieve the greatest economic returns.

And departments will be asked to examine their assets and consider how they can be managed more effectively, and whether they need to be held at all.

Mr Speaker, with these reforms, the Spending Review will shape the Government’s reform agenda for this Parliament, and the role of the state for the next generation.
It is not for the Treasury to impose these decisions on departments.

Nor is it the sole responsibility of the Treasury to deliver fiscal consolidation.

This Government will work collectively to reduce spending in a way that is in line with its values.

To lead this collective approach in government, the Prime Minister has appointed a Committee of senior Cabinet Ministers - the Public Expenditure Committee, or PEX.

I will chair the Committee, supported by the Chief Secretary, and initially the membership will be restricted to those Cabinet Ministers with very small budgets of their own.

Other Cabinet Ministers will be eligible to be considered as members of the Committee once they have settled their departmental allocation.

I’m sure that Members will draw their own conclusions about the incentives this will create.

Finally, over the summer we will conduct a wide public engagement exercise so that the whole country has a chance to get involved.

We have already begun to implement the most radical transparency agenda the country has ever seen.

[…political content…]

The raw data in the COINS database of government spending is available online.

Let me tell you just three shocking examples of wasteful spending under the last Government.

  • Some £1.5 billion spent on consultants.
  • £1 billion spent on advertising.
  • £4.5 billion of defence projects allowed to over-run.

The Treasury will publish more user-friendly subsets of COINS by August, and is committed to publishing online all new items of central government spending over £25,000 from November.

For the first time the public will be able to hold the Government to account in real time for how it spends their money.

But we will go much further than this, with a series of events to debate different parts of government spending.

All parts of government and society will have the chance to make their voice heard.

For this is the great national challenge of our generation.

After years of waste and debt and irresponsibility, to get Britain to live within its means.

It is a time to rethink how government spends our money.

We didn’t choose the terrible economic situation we inherited.

[…political content…]

But we can work to put it right, to deal with our debts, to set our country on a brighter economic course, and show that we are all in this together.

And I commend the Gracious Speech to the House.