BBC NewsAndrew Marr Show


Last Updated: Sunday, 9 March 2008, 11:06 GMT
Shadow Chancellor
On Sunday 09 March Andrew Marr interviewed George Osborne MP, Shadow Chancellor

'Tough love' needed to squeeze welfare spending

George Osborne Jeff Overs/BBC
George Osborne MP, Shadow Chancellor

ANDREW MARR: This week in the midst of mounting economic gloom the Chancellor, Alastair Darling, delivers his first budget.

Economic gloom for the government usually means political sunlight for the opposition, until they get into government themselves of course.

The Conservatives are in that slightly awkward position now and I'm joined by the Shadow Chancellor George Osborne. Thank you for coming in.

That is the problem that you're going to face, isn't it? The economy is in a bad place and you can say that's the government's fault. But in due course you hope you're going to inherit that bad place?

GEORGE OSBORNE: Well I think that's often the case with oppositions, they come in, if you remember back in the Seventies, often in the face of bad economic news. In fact the only exception to that rule was the Labour opposition in the mid-Nineties that inherited a pretty strong economy.

So I think that comes with the territory of being in opposition. I think it's true that this budget, really for the first time in a long time, will be dominated by the overall economic picture and the state of the British economy.

ANDREW MARR: Which is, how bad do you think it is?

GEORGE OSBORNE: Well not the gimmicks or rabbits pulled out of the hat by the Chancellor on Budget Day. I mean things are pretty serious and if you look at the, I'm not an economic forecaster, but if you look at the economic forecasters they are predicting that Britain will experience a sharper downturn than any of our major competitors, and that Britain is the least well prepared major economy in the world to face the credit crunch. And that is a pretty damning indictment of Labour's economic incompetence and record in power.

ANDREW MARR: Which means that, one way or another, taxes are going to have to go up?

GEORGE OSBORNE: Well I think the route out of the budget deficit problem, i.e. we are borrowing more money than any other country in the world apart from Pakistan, Egypt and Hungary. I mean literally we have the worst budget deficit of any major economy in the world.

I think the route of that is not to increase taxes which given the current state of the economy and the current state of consumer confidence, and the fact that families are already seeing a fall in their disposable income, would merely add to those problems.

I think the route out is to share the proceeds of economic growth which means growing public expenditure, growing government, more slowly than you grow the economy, over an economic cycle. In other words do what Darling and Brown have been forced to do for the next couple of years, but do it over the long term and then you pull the country's finances out of the red and into the black.

ANDREW MARR: But if you can't, if you're not going to raise taxes you are already committed to some spending increases. I mean notably on the Health Service where your health spokesman has said a 2% increase of 28 billion eventually, did he speak to you that before he announced this?

GEORGE OSBORNE: Well he did not commit us to a 2% increase Andrew, and you have read the transcripts of what he said...

ANDREW MARR: It reads like that.

GEORGE OSBORNE: He did not commit us to that. It is first of all consistent with the spending plans that we have committed ourselves to and the spending plans that we would follow in government, that you can have a real increase in health spending. So first of all that is consistent. Second of all it is also consistent actually to have health increasing as a percentage of GDP because we're an ageing population.

But what Andrew Lansley was talking about, and what, when you read what he said, he makes very clear, he was talking about the projections from the government's own advisor, Derek Wanless who says there's enormous pressure on health spending for it to increase as a proportion of GDP although interestingly the percentage he's using is both the NHS and the money that we spend as individuals on healthcare.

ANDREW MARR: But what he also says is that if I as Andrew Lansley am going to spend this extra money on the Health Service, other things are going to have to be squeezed and brought down again.

Now, you've also said that you want to do something more for the armed services, or you've criticised the government for not giving the armed services what they need. And people are beginning to ask, hold on a minute, if you're not going to raise taxes, if you're not going to borrow more, and yet you're going to spend more, this three card trick won't work.

GEORGE OSBORNE: Well first of all it is entirely possible, indeed, Gordon Brown regularly sits here or sits in Downing Street and claims it is possible to reduce borrowing, to reduce taxes, and to increase spending. I know he then says "but the Tories can't do that".

If you do this in a prudent way, i.e. you are growing certain things, departments like health, which are important to us all, but you are putting the squeeze on other things like welfare which frankly for ten years we have not tackled in this country.

ANDREW MARR: So you will be squeezing welfare?

GEORGE OSBORNE: We will be squeezing budgets like welfare which are a drag on the British economy. This country has more children, a higher proportion of children in workless households than any other country in Europe. And that is not acceptable.

ANDREW MARR: Are you not as a party now too committed to being nice, to be able to do that kind of squeeze?

GEORGE OSBORNE: No, I think, this is not about, this is about tough love with welfare. I think most people now accept, and the debate on welfare has moved on over the last decade, and that actually the thing to do for people who are not in work is give them the skills but also the incentives through the welfare programme, to get them into work.

ANDREW MARR: So on specifics if the Chancellor gets up and says he is going to hit, for environmental reasons as well, for instance people buying big cars, 4x4s, a new salesroom tax, how would you respond to that?

GEORGE OSBORNE: Well the idea of a salesrooms tax was actually proposed by a Conservative policy group last year. But with all these green taxes our argument is very simple, they should not be stealth taxes, they should not lead to an additional increase in taxation.

This is true also of alcohol, which we can talk about. What we're saying is that if you increases taxes 4x4s or on alcopops or whatever, you should reduce taxes elsewhere. I don't want to see Alastair Darling on Wednesday use either the environment or binge drinking as an excuse for additional taxes. We already have too many additional taxes.

ANDREW MARR: So you might have an argument about what he then does with the money. But, as taxes, a tax on 4x4s, a tax on cheap alcohol, those are taxes that you would be in favour of?

GEORGE OSBORNE: Well I think you can use the tax system to encourage cleaner cars and lower alcohol drinks, those are two examples. So you must use the money you raise to cut taxes for families elsewhere because otherwise they're seen as stealth taxes and there are two reasons why that's bad. The first of all is that it hits the family budget at the very moment when families in this country are seeing a rising cost of living and feeling the squeeze.

Second of all, and I think this is a very important point, you completely lose public trust in the political process, and in the use of the tax system, to tackle things like climate change. If the only thing the public sees this as is a stealthy trick then they say there goes another Chancellor, another Labour Chancellor putting another tax on us. If on the other hand they can actually see, well OK, he's put the taxes up on 4x4s but he has used it to reduce taxes elsewhere, then there'll be more public confidence for using the tax system for that purpose.

ANDREW MARR: Well let's turn to one of those sort of offsetting ideas, which is corporation tax. Now we read, or see, that the Chancellor wants to raise corporation tax and use that as a new source of, an extra source of revenue. You want to cut corporation tax. But you also want to impose new taxes on manufacturing industry which are enormous.

GEORGE OSBORNE: Well, first of all the corporation tax rate, that's the tax rate that businesses pay, is one of the most uncompetitive in the world, at 28p. And we live in a globalised economy where these businesses can either invest in Britain or they can go to China, or they can go to Ireland, just across the Irish Sea, where there is a 12% rate. So having a low corporation tax rate is extremely important in the modern economy if we're going to attract jobs to this country.

Now, at the moment, because of all the reasons we've been talking about there is not scope for a massive cut in business taxes because of the state of the budget deficit. So I'm suggesting simplify the system, get rid of the very expensive reliefs and allowances that exist within the corporation tax system and use the money to cut the headline rate, and also by the way, for small businesses who are currently facing a 2p rise in business tax, keep the business tax rate at 20p.

ANDREW MARR: But the way you do that imposes a 3 billion extra tax on manufacturing business. Manufacturing business is already in trouble and you are going to hammer them?

GEORGE OSBORNE: No, the biggest claimer of these allowances and reliefs are the big utility companies, particularly the energy utility companies.

ANDREW MARR: They'll put the bills up again!

GEORGE OSBORNE: Well, they actually at the moment are first of all enjoying very high prices of oil, and selling us that.

ANDREW MARR: It's a windfall tax.

GEORGE OSBORNE: No, it's not a windfall tax, although that's something the Chancellor is threatening them with. But what it is, what it does say is that these companies are quite well placed at the moment and...

ANDREW MARR: A windfall tax wouldn't be a bad thing would it?

GEORGE OSBORNE: Well hold on, I'll come back to the windfall tax just to finally say these companies can lose some of these reliefs and they too would benefit from a lower corporation tax of 25p. This is about simplification. I mean just...

ANDREW MARR: In simple terms to cut taxes right across business by around three billion lots and lots, hundreds and thousands of different businesses, you are concentrating a new tax or a new system, more taxes, on a relatively vulnerable part of the economy, manufacturing and they're very big taxes.

GEORGE OSBORNE: I don't argue, I don't agree with you that all the weight is being placed on manufacturing. What I'm saying is we are, we are simplifying the corporation tax system, getting rid of the reliefs and allowances in order to cut the rate.

Simplification means taking that kind of tough decision but it does mean that we have a competitive tax rate in Britain and we can attract jobs to this country and investment to this country, which we are not going to do if we stick with Labour's policies.

ANDREW MARR: Mmm. You mentioned alcohol earlier on. Are we a country that needs to pay more for our booze?

GEORGE OSBORNE: Well I think we need to pay more for the drinks that cause the problem. That's alcopops, super-strength ciders, super-strength lagers...

ANDREW MARR: But not fine wines.

GEORGE OSBORNE: But not wine, and nor by the way, the beer that most people will go to the pub on a Saturday night and have a pint, not that. And I think it's again, it's an argument of trust with the public and it's saying to the public, look most of you are perfectly responsible drinkers, you go and have your pint, you go and have your glass of wine at home, you're not causing a problem.

And you should not be paying for the sins of the minority. And we know, in fact I was with the police just a few hundred yards from here last week, and they will tell you the drinks they confiscate from the youngsters, and the drinks they confiscate from the problem drinkers are the super-strength ciders and the alcopops.

ANDREW MARR: OK. Huge numbers of people watching, reading what you say are having a really hard time when it comes to their family budgets and what they want to hear from a Conservative government in waiting, the Conservative Shadow Chancellor, is real tax cuts. And you can't give them those can you, because of the state of the economy?

GEORGE OSBORNE: Look, it is true that I cannot promise a cut in tax at the General Election, an immediate cut in tax, because the budget deficit doesn't allow me to do it.

We've borrowed too much as a country, we've wasted 15 years of global economic growth and left ourselves with the worst budget deficit in Europe. There is not the room to promise huge tax cuts.

ANDREW MARR: And so it's not just your first budget is it, because of the economic cycle it's going to be years when you're going to be in the position of going to be able to offer real tax cuts.

GEORGE OSBORNE: Well let us see what the state of the public finances are as and when the General Election takes place, either next year or now increasingly looking likely the year after.

My ambition as a Conservative is to deliver economic stability for people, a better standard of living, and lower taxes over time. But only as and when the country can afford it.

People don't like chancellors who promise to cut taxes one year and then, because they can't afford to do that, have to put up taxes the next year. I want to deliver sustainably lower taxes in the framework of economic stability.

ANDREW MARR: Don't go away, but for now thank you very much indeed George Osborne.


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

NB: This transcript was typed from a recording and not copied from an original script.

Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, the BBC cannot vouch for its accuracy

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