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Page last updated at 08:51 GMT, Sunday, 19 July 2009 09:51 UK

'Culture Change' required

On Sunday 19 July Andrew Marr interviewed George Osborne MP, Shadow Chancellor

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

Shadow Chancellor promises to balance the nation's books if the Tories come to power.

ANDREW MARR:

George Osborne MP, Shadow Chancellor
George Osborne MP, Shadow Chancellor

'The big discussion in British politics for the foreseeable future is of course how to tackle the debt crisis and deliver quality public services when spending is tight'.

So wrote the Shadow Chancellor in a recent newspaper article.

George Osborne also warned that he's seen what happens when political parties refuse to face the facts of the modern world.

"It condemns them to irrelevancy for a generation".

I'm going to be talking about all of that in a moment. But, Mr Osborne, let's just start by talking about how you plan to reform the financial regulation in this country, the banks and all of that, because you've got a paper coming out tomorrow.

First of all, the FSA, the Financial Services Authority - it's been at the centre of a lot of discussion recently - what's going to happen to that if you win power?

GEORGE OSBORNE:

Well we're going to abolish the Financial Services Authority. We're going to put the Bank of England in charge of regulating our banks, our building societies, other significant financial institutions because we think the system that Gordon Brown created patently failed - and we can see that with the credit crunch and the collapse of many British banks that then had to be rescued - and we want a strong regulator, like the Bank of England, where people know who's in charge, it's got the reputation and the clout to stand up to the bankers; and at the same time create a consumer protection agency that does more of the consumer facing regulation, which also has the clout to ensure that the consumers are treated fairly.

ANDREW MARR:

It could be said that all sorts of institutions called this crisis wrong and didn't see what was coming. And the Bank of England was one of them, so why give them more power?

GEORGE OSBORNE:

Well all sorts of institutions didn't call the system, didn't call the crisis correctly - you're right - but given everything that's happened, it would be bizarre to stick with the system of regulating the banks that failed so spectacularly.

Now of course the Bank of England made mistakes, just like the FSA did and the government made mistakes, but in the end when you look at the different institutions and you say who has the clout, the reputation, the expertise, the history to stand up to the banking system and regulate it properly, in my view, in my judgement, it is the Bank of England. And it would be strange after everything that we've been through not to change the way we regulate banks. I mean people do have a …

ANDREW MARR:

(over) And you look at the people, not just institutions of course, and do you look at somebody like Mervyn King and the people around him and think actually this is one of the wisest people around and I want to give this man more power?

GEORGE OSBORNE:

Well it's not about individuals because of course you know in 2013 there'll be a new Governor of the Bank of England. It is about understanding you cannot separate central banking from the regulation of money and the regulation of banking.

And that was the fundamental mistake that Gordon Brown made in 1997 when he came out of being Shadow Chancellor, became the Chancellor, without any consultation took away from the Bank of England its role to call time on debt - actually against the objections of the late Eddie George, who was then the Governor.

ANDREW MARR:

(over) So … sorry.

GEORGE OSBORNE:

So we are taking a different approach, which is in opposition …

ANDREW MARR:

Yuh.

GEORGE OSBORNE:

… spelling out our plans in great detail tomorrow - people I think will be surprised by the detail and the amount of work we've done on this - because we want to create a system of sound banking and move this country from an age of crisis to an era of confidence in its banking institutions.

ANDREW MARR:

So if I'm banking with a big bank - let's not name names - and I'm worried as an ordinary depositor and borrower that this bank is engaged in what used to be called 'casino capitalism', doing all sorts of strange things with credit swaps and all the rest of it around the …, are you going to deal with that problem? Are you going to reassure me?

GEORGE OSBORNE:

Yes. First of all, if this retail bank - a bank that's got branches in a high street taking your deposits or anyone else's - is engaging in very risky activities, very risky investment banking activities like large-scale proprietary trading or internal hedge funds, then it will have to set aside very large amounts of money as an insurance policy to protect the taxpayer.

Now I happen to think that there are certain activities like large-scale proprietary trading which cannot really easily sit with taking retail deposits on a high street …

ANDREW MARR:

(over) So you wouldn't divide the banks into two kinds?

GEORGE OSBORNE:

… but I think that is best done internationally. I think if we just did it in Britain - this is a very international industry, we would see the industry either leave this country or people get round the rules. So you've got to do these things internationally.

But it's clear to me that if you want to do the highly risky activity … By the way, lots of investment banking is not highly risky, but the highly risky investment banking activity like the large-scale proprietary trading, then you have to set aside an insurance policy. Because we've got to deal with this problem, Andrew …

ANDREW MARR:

Sure.

GEORGE OSBORNE:

… of the free option - the fact that …

ANDREW MARR:

Well let's …

GEORGE OSBORNE:

… the fact that banks can make money in the good years; and then when they fail, the taxpayer has to …

ANDREW MARR:

(over) And then come to the taxpayers in the bad years. I understand that.

GEORGE OSBORNE:

And not to address that seems to me absolutely criminally negligent …

ANDREW MARR:

Well let's, let's …

GEORGE OSBORNE:

… for the political classes, given everything that's happened.

ANDREW MARR:

(over) Sure, sure. Let's turn to the taxpayers and indeed everybody else, and some of the really grim news that seems to be heading our way inevitably because of the amount of money that's been borrowed.

Now we had John Major on this programme and he was saying it's going to be something like the equivalent of 5p extra on income tax for everybody, 20p rate of VAT, and there's still going to have to be tax … spending cuts as well to get things in kilter. And if we don't do those kind of big, big, drastic things, the country's international credit may simply collapse.

GEORGE OSBORNE:

Well, first of all, myself, David Cameron have come on this programme and warned consistently for months that there is a debt crisis …

ANDREW MARR:

Yuh.

GEORGE OSBORNE:

… that Britain has a serious borrowing problem.

ANDREW MARR:

So what can you do about it?

GEORGE OSBORNE:

Well let me just say. First of all, we have been the people who have highlighted this. We're also the people who've said the cupboard is bare, that the country does not have limitless funds in the future. We opposed the temporary VAT cut because we thought the country couldn't afford it. It wasn't popular in the short-term, but I think it was the right long-term judgement. And now we are the people saying honestly to the country that public spending needs to be cut, and it's Gordon Brown who is …

ANDREW MARR:

(over) Sure well that's, that's him, but …

GEORGE OSBORNE:

… in this ridiculous position of dishonestly claiming that somehow there's a choice we can go on spending more money.

ANDREW MARR:

But you've also been looking at …

GEORGE OSBORNE:

But I think it's important because it is has established our credentials as people who are telling the public the truth about the very difficult decisions that are going to be required to deal with an absolutely alarming budget deficit.

ANDREW MARR:

Well let's move on from talking about telling the public the truth to telling the public the truth. You've been looking at Canada where they've cut the state I think by about a third. Is that the kind of drastic change that you're thinking about?

GEORGE OSBORNE:

Well you know each country is different and needs to address these problems differently. The reason for looking at Canada is there is a country that had a very large budget deficit and dealt with it without actually damaging the public services that the Canadians were experiencing, the Canadian public were experiencing.

ANDREW MARR:

So how do you do that?

GEORGE OSBORNE:

Because what you need to do is bring about fundamental reform with the way these services are delivered, so you get more for less, you get more bang for your buck. And you need to …

ANDREW MARR:

And how do you do that? That's the question.

GEORGE OSBORNE:

Well you also need … Well it's a couple of things. First of all, I think you need to obviously deal - and this is the easy part before you leap on me - you need to deal with the chronic waste and inefficiency in the way Whitehall operates and the way many of these public services …

ANDREW MARR:

(over) Let's optimistically tick that box and move on. Sure.

GEORGE OSBORNE:

I said that was the … I mean I say it's easy. It's you know not something this government has managed to do …

ANDREW MARR:

Easy to say.

GEORGE OSBORNE:

But easy to say and we actually are doing a massive amount of work on how that is delivered in practice. Then I think you have to make some tough decisions about certain programmes or certain government activities or certain things that the government was going to buy that is not going to be affordable.

ANDREW MARR:

(over) And so how do you, how do you think about that?

GEORGE OSBORNE:

Well, I think …

ANDREW MARR:

I mean when you're looking at where you're going to take those tough decisions, what's your philosophy, what's your approach?

GEORGE OSBORNE:

Well my philosophy is this. You know where is it essential that government delivers the service? Now obviously in policing or in the army you know the government delivers the service, has to deliver the service. You couldn't imagine anyone else doing it.

In education, you know we are looking at bringing in new providers - private companies or voluntary groups or charities - that can offer state education paid for by the taxpayer, but offer a choice to parents and break up the state monopoly on the state provision of education. The same is true …

ANDREW MARR:

(over) That may be the right thing to do, but it's not going to save you £20 billion, is it?

GEORGE OSBORNE:

Well the same is true, by the way, in welfare services in terms of getting people back to work. Now, look, those are long-term reforms that I think will make the state more efficient, make sure that your taxpayer money, my tax money, the people watching this programme's tax money is better spent, more efficiently spent, that there is choice and real contestability in the system. You also have to make - and you know I'm straight about this - some difficult choices about procurement, about things the government wants to buy in the future that maybe the country just can't afford when it's running a 14% budget deficit.

ANDREW MARR:

(over) Trident submarines and aircraft carriers and things like that?

GEORGE OSBORNE:

Well we are going to have to make some difficult decisions about government procurement. You know I will set out specific details in the nine or so months between now and the General Election, but we have to establish the base argument, which is government spending has to be cut. And the trouble is at the moment …

ANDREW MARR:

(over) And can, can you give me …

GEORGE OSBORNE:

… I have a Prime Minister, you have a Prime Minister who is in total denial about this and so I have to establish this argument and win it comprehensively, which I think we are now winning comprehensively, and then we can set out some of the difficult decisions …

ANDREW MARR:

(over) Can you give me any examples at all?

GEORGE OSBORNE:

Well we have set out … I know you're going to say "I've heard all these things before", but frankly …

ANDREW MARR:

Well if I've heard them before, let's move on - with respect.

GEORGE OSBORNE:

Well no, I mean … Can I just give you one example because again I came on this programme last year and said the ID card scheme was unaffordable. You're now going to have the Home Secretary on this programme later and he will say well maybe we can't go ahead with the ID card scheme, as we originally conceived it. That's another argument we have won, and we will win further arguments later this year about …

ANDREW MARR:

(over) Can I put it to you … Sorry …

GEORGE OSBORNE:

… items of government spending we can't afford, government programmes that are too expensive …

ANDREW MARR:

Sure.

GEORGE OSBORNE:

… transfer payments that need to be looked at again. You know these are … But I don't want to underestimate. These are very difficult decisions and it's not easy to cut spending …

ANDREW MARR:

(over) What I'm … Yes, okay, what I …

GEORGE OSBORNE:

… but the first thing you've got to do is be honest with the public about the need to do it.

ANDREW MARR:

(over) Alright, the need to do it. Can I put it to you that these are as it were skirmishes around the edge; and they may be important skirmishes for you to fight and win, but nonetheless the big decisions are still at the centre?

And what I'm trying to get is some sense of how much the world is going to have to change, given what you think is coming. We could, for instance, see a world where we were all paying more in charges for driving and this and that and lots of medical issues and so on, or we could see a world in which VAT did have to go up and income tax for everybody did have to go up. What I'm asking you is is that an unrealistic prospect, those sorts of big changes?

GEORGE OSBORNE:

Well I'm …

ANDREW MARR:

I'm not going to … not pinning you down to one or the other.

GEORGE OSBORNE:

Look, I think the way the world is going to change is this. We've operated in a Whitehall, in a system of government where money was not really an object, where there was as much money as people wanted and it was just poured into services that didn't use the money terribly well. And that has changed, the cupboard is bare.

So every government service has to look at how it's spending money and the emphasis, both within government but also within those services, is how do I get the maximum possible benefit out of this pound that's available because I know there's not the second pound round the corner. And that whole culture change, which has to start in the cabinet and ends up at the frontline of all of our services, is the big change that is coming.

ANDREW MARR:

But we will all be paying a bit more I mean for things and we'll be paying more in tax and so on, inevitably?

GEORGE OSBORNE:

Well I haven't ruled out tax rises and indeed you know I haven't ruled them out from the day I started this job four years ago.

ANDREW MARR:

(over) Sure, I understand that.

GEORGE OSBORNE:

But I do think after a decade of overspending people should not be overtaxed because of that mistake. So, in other words, the bulk of the strain of dealing with this debt crisis has to be cutting public spending, restraining public expenditure growth. You know that is where we've got to look for the bulk of the effort in dealing with this national debt crisis bequeathed to us by the Prime Minister.

ANDREW MARR:

You mentioned just now the military. Would you as Chancellor give the military what they ask for, what they say they need in Afghanistan?

GEORGE OSBORNE:

Well, look, I think you have to distinguish between the war we are currently fighting in Afghanistan …

ANDREW MARR:

That's what I'm asking about.

GEORGE OSBORNE:

… and it is a war. And there I think there is a clear obligation that if a government sends troops into action, you have to provide them with the equipment necessary, the helicopter capacity necessary. We've been calling on the government to do this for two or three years and they have failed. And then you have to separate that from the broader defence budget, which is a £36 billion budget going forward, and clearly match in the future what we didn't do in Afghanistan, which is capability with commitments. And that requires a proper strategic defence review. You know sitting in opposition …

ANDREW MARR:

(over) Sure, you have to do … you have to look at the whole thing.

GEORGE OSBORNE:

Sitting in opposition without a direct access to military advice, without knowing what is in some of these procurement contracts because they are secret, trying to devise a strategic defence review would be frankly irresponsible. So we are going to have a rapid defence review and match our capability to our commitments.

ANDREW MARR:

Okay.

GEORGE OSBORNE:

But for the troops now fighting in Afghanistan, they should get what they need to protect themselves and fulfil their mission. And the helicopter issue, the issue that they don't have enough helicopters, is a scandal because in 2006/2007/2008 and now in 2009, we have raised this issue and since then over a £100 billion pounds has been spent on defence.

ANDREW MARR:

George Osborne, much more to talk about on future occasions, but for now thank you very much indeed.

GEORGE OSBORNE:

Thank you.

INTERVIEW ENDS


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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