:00:00. > :00:20.Well Chancellor, can I welcome you to the House
:00:21. > :00:30.Congratulations on your appointment and I hope you've got over your jet
:00:31. > :00:34.I gather you want to make a few opening remarks?
:00:35. > :00:40.Well, I just, with your permission, wanted to make a brief statement,
:00:41. > :00:44.if I may, to take advantage of the fact that I am in Parliament,
:00:45. > :00:49.to inform Parliament that I have decided to give my first
:00:50. > :00:57.Autumn Statement to Parliament on the 23rd of November 2016.
:00:58. > :01:01.The Autumn Statement will set out the Government's economic and fiscal
:01:02. > :01:04.plans, based on the latest forecasts from the Office for Budget
:01:05. > :01:10.In the run-up to the Autumn Statement, I will be engaging
:01:11. > :01:11.with Britain's business leaders, employee representatives,
:01:12. > :01:15.through a series of industry round tables, meetings and visits,
:01:16. > :01:17.and of course, I will engage with Parliamentary colleagues.
:01:18. > :01:26.I'm sure a number of the topics we will want to ask you about today
:01:27. > :01:31.will of course be relevant to the Autumn Statement,
:01:32. > :01:33.and we are very keen to hear your thinking
:01:34. > :01:38.and your general approach to some of the key issues.
:01:39. > :01:40.Perhaps I can start off though with housing,
:01:41. > :01:43.which as you know we published a report on housing just
:01:44. > :01:49.Our conclusion was that in order to meet demand,
:01:50. > :01:54.catch up on unmet demand, and also to moderate house price
:01:55. > :01:58.rises and make house prices over time more affordable to young people
:01:59. > :02:03.who are seeking to buy homes, we would need to build 300,000 homes
:02:04. > :02:11.a year, which is about 50% above the government's current target.
:02:12. > :02:14.In order to achieve that, local authorities would have to play
:02:15. > :02:22.And there would need to be a shift of emphasis away from houses
:02:23. > :02:28.for sale to social housing, to meet a larger need in that area.
:02:29. > :02:30.And we would very much welcome your thoughts
:02:31. > :02:35.on those conclusions, and in particular, what arrangements
:02:36. > :02:41.you could contemplate to enable local authorities to take advantage
:02:42. > :02:45.of the historically low long-term interest rates, to invest in social
:02:46. > :02:47.housing in partnership with the private sector
:02:48. > :03:00.Which of course would generate income, over a considerable
:03:01. > :03:03.I welcome the central recommendation of your report,
:03:04. > :03:07.which is that we need to increase housing supply.
:03:08. > :03:13.The government is committed to increasing house-building.
:03:14. > :03:16.It won't surprise you to know that this is an area
:03:17. > :03:24.Both because it goes to the heart of the Prime Minister's agenda
:03:25. > :03:33.of creating an economy that works for everybody.
:03:34. > :03:38.Too few people are able to get onto the housing ladder,
:03:39. > :03:40.and too few people are able to access
:03:41. > :03:42.appropriate housing, whether by purchase or for rent.
:03:43. > :03:49.There are a number of aspects to that problem.
:03:50. > :03:52.It is also, of course, a macro economic problem.
:03:53. > :03:56.It has a huge impact on the overall functioning of the economy,
:03:57. > :04:01.It's an area that has our full attention at the moment.
:04:02. > :04:06.In due course, we will announce how we intend to proceed.
:04:07. > :04:10.But I can confirm that we share the committee's analysis,
:04:11. > :04:17.that there needs to be an increase in the rate of house building.
:04:18. > :04:21.We want to see a diversity of tenure types available, and we will bring
:04:22. > :04:27.forward policy announcements in due course.
:04:28. > :04:29.That's all I can really say at the moment.
:04:30. > :04:32.Do you share our recommendation and enthusiasm for local authorities
:04:33. > :04:35.to resume their historic role and play a significant part?
:04:36. > :04:41.And if so, how would they finance that?
:04:42. > :04:45.Because the housing revenue account has some rather curious limits
:04:46. > :04:48.and the way it enables local authorities to build swimming pools,
:04:49. > :04:51.apparently any number of swimming pools, but not build houses,
:04:52. > :04:59.which seems to be a rather perverse outcome of the current rules.
:05:00. > :05:05.There is head room in existing housing revenue account authorities.
:05:06. > :05:08.There is, I'm told, ?3.4 billion of borrowing headroom
:05:09. > :05:18.underneath the cap, and a ?300 million extension to HRA borrowing
:05:19. > :05:20.limits that was announced in AS13 and was undersubscribed.
:05:21. > :05:23.I'm not convinced it is lack of access to borrowing
:05:24. > :05:26.that is preventing local authorities from building.
:05:27. > :05:32.We will certainly look at local authorities,
:05:33. > :05:38.registered social landlords, and the private sector,
:05:39. > :05:41.and indeed, the corporate sector, as being potentially parties who can
:05:42. > :05:48.play a part in dealing with the country's overall housing needs.
:05:49. > :05:52.But I think we all know that this is not primarily
:05:53. > :06:00.It's a land availability challenge that we have to address in order
:06:01. > :06:02.to bring down house prices to affordable levels,
:06:03. > :06:14.Well, that wasn't the evidence that we heard.
:06:15. > :06:17.There is a large number of permission homes granted every
:06:18. > :06:22.A great deal of public land which could be pressed into service
:06:23. > :06:27.to be building houses was very slow in becoming available.
:06:28. > :06:30.So again, there is a role for the government there.
:06:31. > :06:33.We felt the Treasury with its new infrastructure
:06:34. > :06:36.commission, would be able to play a role of driving
:06:37. > :06:41.The Housing Implementation Task Force, which oversees the release
:06:42. > :06:46.of public sector land, is attended by the Chief Secretary.
:06:47. > :06:49.I have some experience of this from my days as Secretary
:06:50. > :06:57.of State for Defence, the biggest release of land
:06:58. > :07:06.The challenge is that many of the sites that government
:07:07. > :07:09.has available for release are very, very large strategic sites.
:07:10. > :07:11.RAF airfields perhaps, quite a long way from
:07:12. > :07:15.They may over time deliver very large numbers of housing units,
:07:16. > :07:20.but they will require very large amounts of infrastructure
:07:21. > :07:22.and inevitably, need phased development.
:07:23. > :07:26.If I could also make a couple of observations,
:07:27. > :07:32.one of the challenges in addressing the discrepancy between planning
:07:33. > :07:35.permissions granted and planning permissions built is the tendency
:07:36. > :07:39.of local authorities, and I completely understand why
:07:40. > :07:42.they find it convenient to do so, to meet their housing needs
:07:43. > :07:46.by releasing a small number of very large sites,
:07:47. > :07:48.often sites that need very significant infrastructure
:07:49. > :07:58.Inevitably, that leads to a lack of competition in local markets
:07:59. > :08:00.because you have effectively a monopoly supplier controlling
:08:01. > :08:08.And the other point is that there is not any such thing
:08:09. > :08:14.Housing markets are highly local, and there is overall a mismatch
:08:15. > :08:17.between where the planning permissions are being granted
:08:18. > :08:21.and where the hotspots of demand exist.
:08:22. > :08:28.The reality is that we have to address some very challenging
:08:29. > :08:32.questions of how we deliver increased housing availability
:08:33. > :08:38.in the areas where the high levels of housing demand exist.
:08:39. > :08:44.As you go through your consultation process for the Autumn Statement,
:08:45. > :08:50.I would humbly suggest you should consider discussing this with local
:08:51. > :08:55.authorities, who show a great deal of enthusiasm to get building.
:08:56. > :08:59.They obviously have a great deal of local knowledge but they don't
:09:00. > :09:03.have the finance to do it, and feel that is a pressing pressure
:09:04. > :09:12.that they want the Treasury to address.
:09:13. > :09:27.Chancellor, I want to start by asking you what you said
:09:28. > :09:28.about resetting economic policy.
:09:29. > :09:31.I'm interested in your view on the balance between what monetary
:09:32. > :09:33.policy can do and what fiscal policy can do.
:09:34. > :09:36.In particular, do you accept that monetary policy has possibly
:09:37. > :09:39.run its course in this country and probably in Europe as well,
:09:40. > :09:43.and that as interest rates come near zero or below zero in some
:09:44. > :09:46.cases, if you really want to put money into the economy,
:09:47. > :09:48.then it's fiscal policy that is likely
:09:49. > :09:57.I wonder if I can just draw you on where you stand
:09:58. > :10:01.The comment I made was that we would have an opportunity
:10:02. > :10:11.By which I was referring to the fact that the Prime Minister has made
:10:12. > :10:16.clear that we will no longer be seeking
:10:17. > :10:20.to reach a fiscal surplus in 2019-2020.
:10:21. > :10:24.Clearly, we need to put a new fiscal framework in place to guide policy
:10:25. > :10:29.Clearly, monetary policy is the remit of the Bank of England,
:10:30. > :10:33.and I don't want to say anything that might undermine their clear
:10:34. > :10:43.responsibility and independence in this area.
:10:44. > :10:46.The governor has made it quite clear that he thinks he does
:10:47. > :10:50.have further ammunition in the bank's locker.
:10:51. > :10:53.Not only in terms of rate reduction, but in terms
:10:54. > :11:03.I think that monetary policy can and should operate alongside fiscal
:11:04. > :11:09.The bank was the first mover, if you like, after the shock
:11:10. > :11:13.to the economy of the referendum exit vote.
:11:14. > :11:17.I will have an opportunity on the 23rd of November to consider
:11:18. > :11:19.whether a fiscal response is appropriate, alongside that
:11:20. > :11:31.And I think both policy levers are valid and have a role to play.
:11:32. > :11:34.I appreciate the point you made about a reset.
:11:35. > :11:36.The government was never going to hit that particular target,
:11:37. > :11:49.I just want to draw you on the fiscal aspect.
:11:50. > :11:52.I am not asking you to say what you will do.
:11:53. > :11:55.Would you be prepared, or do you think it would be right
:11:56. > :11:59.that if we are wanting to put more money into the economy to get
:12:00. > :12:02.the economy going and put the inflation rate up,
:12:03. > :12:05.it's more likely than not it is fiscal policy that will do it,
:12:06. > :12:09.rather than what is left in the monetary policy locker?
:12:10. > :12:16.I would certainly agree that fiscal policy can play a role.
:12:17. > :12:19.In relation to fiscal policy, do you believe that you should be
:12:20. > :12:30.looking at infrastructure projects, targeting tax measures on those
:12:31. > :12:33.who will spend the money, rather than those who will save it.
:12:34. > :12:37.If there is a need at any time to deliver a fiscal stimulus
:12:38. > :12:39.for broader reasons, it has to be well designed.
:12:40. > :12:42.It has to be limited in duration, quick in delivering effect,
:12:43. > :12:45.and given our overall fiscal position, which is still unhealthy,
:12:46. > :12:50.ideally, it will be contributing to the long-term investment needs
:12:51. > :12:52.of the country, contributing to the challenge of raising
:12:53. > :13:13.And therefore, I would hope that in designing a fiscal stimulus,
:13:14. > :13:16.any sensible Chancellor would seek to do as much as possible
:13:17. > :20:33.through investment, that will not only deliver short-term demand
:20:34. > :20:41.about the Bank of England's predictions which were included
:20:42. > :20:47.We were told we would have higher interest rates, technical recession
:20:48. > :20:50.recessions, and employment would go up and House prices would fall.
:20:51. > :21:01.Are you not concerned that the whole question about Q E,
:21:02. > :21:04.that you made clear this morning, now resides
:21:05. > :21:08.which is having a real impact, as Lord Lamont has suggested.
:21:09. > :21:17.I looked at the numbers, and if you look at the House price
:21:18. > :21:28.to earnings ratio from the last quarter of 2012 to the last quarter
:21:29. > :21:43.of 2015, it has increased by 4.2 times to 6.9 times
:21:44. > :21:45.and in Greater London, 5.9 times to 6.12 times.
:21:46. > :22:02.Are you not concerned that Q E is resulting,
:22:03. > :22:06.the latest tranche of Q E will need to be put into final
:22:07. > :22:09.That huge vacuum of money which is based on artificially low
:22:10. > :22:12.interest rates, which would otherwise be invested in jobs
:22:13. > :22:15.and creating a growth in the economy.
:22:16. > :22:18.Have we not actually got to the stage where the bank
:22:19. > :22:21.is effectively running economic policy in a way,
:22:22. > :22:24.which is to the disadvantage to the Government's declared
:22:25. > :22:27.objective to make wider homeownership available,
:22:28. > :22:36.and also enable wealth to be spread more equally,
:22:37. > :22:39.when it's actually taking wealth away from, if I can use
:22:40. > :22:46.the phrase, ordinary, hard-working people,
:22:47. > :22:55.to people who have substantial assets.
:22:56. > :23:07.As Chancellor, shouldn't you get a grip on it?
:23:08. > :23:11.It is the case that Q E is built upon the principle of causing asset
:23:12. > :23:15.I think we could have a long debate about what is happening
:23:16. > :23:20.I have no doubt that in the end, it's about supply,
:23:21. > :23:23.If the supply of land for housing is increased,
:23:24. > :23:26.no amount of monetary inflation is going to force prices to rise
:23:27. > :23:33.The situation we have got in the UK has been,
:23:34. > :23:46.increasing money supply, and very constrained resource
:23:47. > :23:53.Obviously, creating an artificial asset price for inflation.
:23:54. > :23:56.On the wider point, the monetary policy committee obviously has
:23:57. > :23:57.responsibility for monetary policy decisions.
:23:58. > :24:05.But as we've already rehearsed, the governor does require
:24:06. > :24:18.the consent of the Treasury for unconventional monetary stimulus.
:24:19. > :24:30.They can't do it without the Treasury's agreement.
:24:31. > :24:34.I think it would be wrong to characterise this as the bank
:24:35. > :24:39.I was responding to the point you made that you
:24:40. > :24:42.I don't want to comment publicly on a matter
:24:43. > :24:45.which is a responsibility of the monetary policy committee.
:24:46. > :24:49.But I draw attention again that there are no steps of positive
:24:50. > :24:51.easing that the bank can take, without seeking the approval
:24:52. > :25:01.Just on the housing point, finally, and I take your point
:25:02. > :25:12.As you say, it is very complicated, but if the house price to earnings
:25:13. > :25:16.ratio has doubled in three years, in London, that can't just be
:25:17. > :25:21.There are other factors involved here, and similarly,
:25:22. > :25:27.could you address the point about the pension funds?
:25:28. > :25:30.For example, would you consider extending the period,
:25:31. > :25:34.which at the present time companies have got to deal with any deficit
:25:35. > :25:42.Would you consider extending that period, given that we are in
:25:43. > :25:45.a highly than usual period and interest rates
:25:46. > :25:55.yes, I am sorry. I should have answered that question.
:25:56. > :26:00.I did ask the question myself, what has been the impact on funded
:26:01. > :26:09.And the response that I have received,
:26:10. > :26:12.the advice I have received, is that the additional underfunding
:26:13. > :26:14.is not thought likely to give rise to any
:26:15. > :26:28.That there are no pressures for action coming from anywhere
:26:29. > :26:32.because of the fact that this is something that needs to be
:26:33. > :26:37.It doesn't require immediate action, and in the context of the overall
:26:38. > :26:40.pension deficit, it is not a step change.
:26:41. > :26:43.It is also the case that corporations collectively
:26:44. > :26:45.have a very substantial amount of cash
:26:46. > :26:58.in their balance sheets, and so I would challenge the notion
:26:59. > :27:02.that every pound required to close the pension fund deficit is a pound
:27:03. > :27:11.snatched away from investment in productive capacity.
:27:12. > :27:18.It is taken away from cash and balance sheets very often.
:27:19. > :27:21.You talked about that being a role for both fiscal
:27:22. > :27:26.And of course for much of the 1980s, the way this tended to be put
:27:27. > :27:29.was wanting to have a fiscal policy that supported monetary policy.
:27:30. > :27:32.In those days, the job was to get inflation down.
:27:33. > :27:37.Now, the problem seems to be to get inflation back up to the target.
:27:38. > :27:40.Is it not therefore the case, given where we are,
:27:41. > :27:44.that monetary policy does need some support?
:27:45. > :27:47.I mean interest rates must be very close to the limit.
:27:48. > :27:50.We've heard from Lord Lamont about some of the distortions
:27:51. > :28:00.Instead of thinking about this as being two policy instruments,
:28:01. > :28:02.is it not the case that monetary policy really does now
:28:03. > :28:09.That the Bank of England is really running out of room to pursue
:28:10. > :28:17.First of all, the difference in the 1980s was that we did both
:28:18. > :28:29.monetary and fiscal policy at the time.
:28:30. > :28:33.As to your point about the turnaround in inflation,
:28:34. > :28:38.it is important that the Bank of England's inflation target
:28:39. > :28:47.We see inflation too low as being as damaging
:28:48. > :28:49.to the economy in the long term as inflation too high.
:28:50. > :28:52.I can only repeat what the governor has said.
:28:53. > :28:54.He has said that there is further capacity,
:28:55. > :28:57.the bank has further capacity in all three areas.
:28:58. > :29:02.That it has used as levers of monetary policy,
:29:03. > :29:05.that the bank's view of the floor limit on interest rates
:29:06. > :29:09.is a number which is positive, but very close to zero.
:29:10. > :29:13.And therefore, there is more that the Bank believes it can
:29:14. > :29:28.We also clearly, depending on the fiscal rules that we set,
:29:29. > :29:31.can create at Autumn Statement, headroom for fiscal stimulus,
:29:32. > :29:36.if we believe it is appropriate to do so.
:29:37. > :29:39.Indeed, we can create headroom for fiscal stimulus
:29:40. > :29:41.whether we decide that fiscal stimulus is appropriate
:29:42. > :29:48.It would be perfectly possible to design a set of fiscal rules that
:29:49. > :29:51.provides headroom, without necessarily using that
:29:52. > :30:04.Could I press on one aspect of this, in the sense of very
:30:05. > :30:08.Obviously you can't say much more about fiscal policy at this stage,
:30:09. > :30:10.given that we have the Autumn Statement.
:30:11. > :30:15.But do you have any response to the general idea put forward
:30:16. > :30:19.at a time when interest rates are as low as they are,
:30:20. > :30:21.that really the government should avoid this pursuit of off-balance
:30:22. > :30:25.sheet funding which it is tried on a number of occasions,
:30:26. > :30:32.using private finance to do what our public sector projects,
:30:33. > :30:35.and often in more expensive ways than could be done
:30:36. > :30:39.And is this not a time when we should be saying,
:30:40. > :30:46.well, the government is in a very strong position of being able
:30:47. > :30:49.to borrow on its own account and it should not
:30:50. > :30:52.be looking far and wide for various schemes to really lay off
:30:53. > :30:57.the problem about public sector debt measures?
:30:58. > :31:06.I think, in terms of low borrowing costs, and the choice
:31:07. > :31:18.between publicly funded and privately funded...
:31:19. > :31:21.public sector projects, I am talking about.
:31:22. > :31:27.Is never going to revolve around the relative cost of finance
:31:28. > :31:29.because the government's cost of finance will always be cheaper
:31:30. > :31:31.than the private sector's cost of finance.
:31:32. > :31:34.In well-designed off-balance sheet projects, the real worry
:31:35. > :31:36.is transferring risk to the private sector partner.
:31:37. > :31:39.And although there are in theory, ways of transferring some elements
:31:40. > :31:41.of that risk to a private sector contractor partner,
:31:42. > :31:44.for example, while financing on balance sheet, the reality
:31:45. > :31:47.is if you are financing on balance sheet, the risk always bounces back
:31:48. > :31:56.So I think, for me, it's always been the case and remains the case
:31:57. > :32:00.that the argument for off-balance sheet financing has to be
:32:01. > :32:04.constructed around the transfer of risk rather than simply
:32:05. > :32:07.the losing of the inconvenience of the debt going
:32:08. > :32:19.We were looking recently at an issue of the student loan book
:32:20. > :32:22.and the question of the sale of that.
:32:23. > :32:25.And we struggled very hard to see where the risk transfer
:32:26. > :32:27.was that was taking place in this area.
:32:28. > :32:29.And very much thought this seemed to be an approach
:32:30. > :32:32.that was being designed almost entirely to keep
:32:33. > :32:41.Well, I mean the government has a certain borrowing capacity.
:32:42. > :32:45.PSN D as a percentage of GDP is not an irrelevant number.
:32:46. > :32:48.Our policy has been and will remain that where assets in the government
:32:49. > :32:51.balance sheet serve no policy purpose, they should be disposed
:32:52. > :32:58.of in order to create headroom for policy driving investment.
:32:59. > :33:05.And in the case of the student loan book, the policy is achieved
:33:06. > :33:16.without the need to have the asset sitting on the balance sheets
:33:17. > :33:18.by the government, underwriting effectively the expected default
:33:19. > :33:21.rate, the expected non-repayment element of the student loan book.
:33:22. > :33:25.So I think the policy intention to dispose of the student loan book
:33:26. > :33:29.Obviously, the timing of that decision will be subject
:33:30. > :33:45.Just a quick question on the housing market, Chancellor.
:33:46. > :33:48.You believe it is a question of supply and demand.
:33:49. > :33:53.Do you think the government schemes for effectively subsidising
:33:54. > :34:03.homeownership, skew the market in a way that's not helpful?
:34:04. > :34:06.Well, the current range of schemes we have in place is certainly
:34:07. > :34:11.designed specifically to support homeownership.
:34:12. > :34:14.We know that 90% of people aspire to own a home.
:34:15. > :34:18.So in a sense, government policy is responding to the desires
:34:19. > :34:23.and the aspirations of the electorate.
:34:24. > :34:29.But we also know, don't we, that although 90% of people may
:34:30. > :34:35.aspire to own a home, in reality, far less than 90%
:34:36. > :34:39.of people will actually be able to own a home?
:34:40. > :34:43.And it is important that we have a range of tenure types
:34:44. > :34:48.which reflects the reality of the world, not just aspirations.
:34:49. > :34:51.I'm very keen to see structures like shared ownership and rent
:34:52. > :34:56.to buy playing an appropriate role in our overall housing market mix.
:34:57. > :35:04.Would you agree that subsidising homeownership does inflate prices?
:35:05. > :35:12.If you are referring to the starter home scheme,
:35:13. > :35:25.as I understand the detail of the scheme, the homes that
:35:26. > :35:29.will be delivered on a site, effectively displace what would have
:35:30. > :35:31.been affordable homes delivered in another way perhaps,
:35:32. > :35:33.affordable homes for rent, by focusing the subsidy
:35:34. > :35:35.that is already implicit in the obligations developers
:35:36. > :35:38.receive through section 106 agreements and so forth.
:35:39. > :35:40.To focus them on delivering homes for ownership.
:35:41. > :35:47.Help to buy similarly, helping people to get
:35:48. > :35:49.onto the housing ladder is a conscious bias in favour
:35:50. > :35:51.of ownership, reflecting the aspiration of 90%
:35:52. > :36:08.As I said, we are looking in the round at housing
:36:09. > :36:11.These are very complicated areas and we will announce any policy
:36:12. > :36:21.Are you thinking that the objective of getting to surplus is retained
:36:22. > :36:25.and you are simply looking at how long you take to do it,
:36:26. > :36:30.or are you looking at the possibility that surplus itself
:36:31. > :36:34.isn't necessarily the right end point for a society which has
:36:35. > :36:37.poor infrastructure, can borrow at virtually no cost
:36:38. > :36:45.at all, and has plenty of people willing to lend to the government?
:36:46. > :36:59.And you said that the PSND needs to be brought down.
:37:00. > :37:03.It can be brought, PSND, as a proportion of GDP,
:37:04. > :37:10.it can be brought down without actually getting as far
:37:11. > :37:14.as surplus, it can be done by having a borrowing requirement 2% or 3%
:37:15. > :37:20.But you do not need to go all the way to generating a surplus
:37:21. > :37:23.in order to achieve a decline in the debt GDP ratio.
:37:24. > :37:26.If you have a borrowing requirement of 2-3% of GDP, unless you have
:37:27. > :37:29.a consistent GDP growth rate above that level, your PSND
:37:30. > :37:32.will not be going down, it will be going up.
:37:33. > :37:35.I would suggest that the level of PSND as a ratio of GDP
:37:36. > :37:38.that we are at at the moment, we are getting quite
:37:39. > :37:41.to the level that might make a difference to the willingness
:37:42. > :37:46.I don't think we should be cavalier about the levels of debt.
:37:47. > :37:52.Perhaps I can help the noble lord by reminding him of what the Prime
:37:53. > :37:56.Minister said at PMQs on the 20th of July,
:37:57. > :38:00.she said: "We have not abandoned the intention to move
:38:01. > :38:06.What I have said is we will not target that at the end
:38:07. > :38:09.That is what I think is possibly a mistake,
:38:10. > :38:13.Can I make one other point on the question of housing
:38:14. > :38:18.If you are trying to get another 50,000 people over the line
:38:19. > :38:26.into homeownership, but the supply of houses by private sector builders
:38:27. > :38:31.does not increase, the only way that is resolved is that you get
:38:32. > :38:34.50,000 people in, and house prices rise in order to discourage
:38:35. > :38:38.a different 50,000 from getting on the ladder.
:38:39. > :38:41.So this is an issue, housing supply increases at the same
:38:42. > :38:49.time, this is a self defeating prophecy.
:38:50. > :38:51.Well, I have already said I completely agree
:38:52. > :38:53.with the committee's analysis that we need to significantly
:38:54. > :38:55.increase house-building rates in this country.
:38:56. > :39:00.And there are many challenges to doing that.
:39:01. > :39:01.There's a planning challenge, a capacity challenge
:39:02. > :39:11.But it's very clear that this is one of the factors.
:39:12. > :39:15.If you're looking to answer the question, why does the UK
:39:16. > :39:19.economy perform differently from other
:39:20. > :39:21.comparable economies, particularly in productivity
:39:22. > :39:25.performance, it seems logical to me to look at ways in which the UK
:39:26. > :39:30.economy functions differently from other comparable economies.
:39:31. > :39:33.The way our housing market functions is very clearly,
:39:34. > :39:37.very different from the way the housing market
:39:38. > :39:38.functions in France, Germany, the Netherlands,
:39:39. > :40:02.And I think we should probably seek to draw lessons from that.
:40:03. > :40:06.I want to put this question, when you said 90% of people aspire
:40:07. > :40:10.I wonder whether you would expect that to change in the light
:40:11. > :40:15.of a prolonged period of low inflation.
:40:16. > :40:18.As you are aware, the propensity to homeownership does vary very
:40:19. > :40:19.considerably amongst Western European economies.
:40:20. > :40:22.It is a broad generalisation, those that have endured or suffered
:40:23. > :40:25.bouts of high inflation in the period since the Second World
:40:26. > :40:32.War, tend to have a high propensity for homeownership,
:40:33. > :40:36.whereas those who have not suffered in that way,
:40:37. > :40:38.such as Germany and the Netherlands, which you've mentioned,
:40:39. > :40:46.tend to have a low propensity to homeownership.
:40:47. > :40:49.Now for much of the lifetime of people around this table,
:40:50. > :40:52.if not at the back of the room, there was a tax
:40:53. > :40:55.incentive to own your own home through the mortgage arrangements.
:40:56. > :41:03.Now we have had some period of low inflation,
:41:04. > :41:05.and we might have a good deal more judging
:41:06. > :41:11.I wondered whether in the light of that, you would expect
:41:12. > :41:15.the propensity to home ownership to revert to the sort of levels
:41:16. > :41:18.it is in some other countries and was indeed in this country,
:41:19. > :41:35.I don't think there is any evidence that the aspiration
:41:36. > :41:51.of years when we have had low inflation.
:41:52. > :41:56.But clearly, when you buy a house, you are doing two things.
:41:57. > :42:00.You are purchasing a place to live and using it as a place to live
:42:01. > :42:03.and making an investment, which has historically turned out
:42:04. > :42:08.The factors at work will be people's desire to own the home they live
:42:09. > :42:11.in, which I think is a strong and deep rooted instinct,
:42:12. > :42:13.independent of the investment performance of the asset.
:42:14. > :42:16.It will be partly motivated by the likely return
:42:17. > :42:24.I don't agree with you that housing is no longer a tax privilege,
:42:25. > :42:26.a tax privileged class of investment, it is
:42:27. > :42:43.It depends, arguably, the removal of schedule a taxation
:42:44. > :42:46.greatly enhanced the tax advantages of owner occupation.
:42:47. > :42:49.It is still a hugely privileged asset class.
:42:50. > :42:52.And of course, people will also be influenced by alternative
:42:53. > :43:07.I don't suppose the noble lord goes in pubs.
:43:08. > :43:12.You will hear people saying, I do not put money in a pension,
:43:13. > :43:19.People look at the after-tax attractiveness of different asset
:43:20. > :43:21.classes, when they are looking at the propensity
:43:22. > :43:31.The people I meet in pubs are looking for somewhere rent.
:43:32. > :43:33.It is getting more and more difficult.
:43:34. > :43:38.It depends on the class of pop you go to.
:43:39. > :43:47.Going back to the scepticism about whether the borrowing rules
:43:48. > :43:51.on local authorities are a real constraint,
:43:52. > :43:54.the local authorities gave us evidence that suggests
:43:55. > :43:56.they strongly thought it was a constraint.
:43:57. > :43:59.If you don't think it is a constraint, then what would you do
:44:00. > :44:02.in the important Autumn Statement, to ensure that local authorities
:44:03. > :44:11.Because it is clear, if you look at foreign examples
:44:12. > :44:14.like France, or our own past history, that the one
:44:15. > :44:17.thing that has gone badly wrong in this country is that
:44:18. > :44:20.while the private sector is still building roughly the same
:44:21. > :44:26.number of houses, Housing Associations and local authorities
:44:27. > :44:30.are not, and I wonder if one is the crack the supply problem,
:44:31. > :44:37.What I am afraid I cannot do today is to tell you in response
:44:38. > :44:41.to the question, what are you going to do in your Autumn Statement?
:44:42. > :44:44.But I recognise the challenge and I have said already,
:44:45. > :44:46.that local authorities, social landlords, corporates,
:44:47. > :44:48.private house-builders, they all have to be part
:44:49. > :44:58.I have already noted down the point about local authority borrowing
:44:59. > :45:01.constraints, and I have not met with the LGA,
:45:02. > :45:02.but I will take that question forward.
:45:03. > :45:13.The hard evidence, which is the available borrowing
:45:14. > :45:15.capacity in housing revenue account authorities,
:45:16. > :45:17.suggests that maybe borrowing is not a constraint.
:45:18. > :45:20.You have suggested that it is, and I will take that up
:45:21. > :45:26.There are bits of it here and there with
:45:27. > :45:33.I accept that and it would be important to understand how many
:45:34. > :45:36.authorities there were chafing at the bit to build houses,
:45:37. > :45:46.Just coming back to well-designed off-balance sheet transactions.
:45:47. > :45:50.Focusing for a moment on Hinkley Point, which seems to be
:45:51. > :45:55.being financed to generate a mere 10% return, probably twice the level
:45:56. > :45:57.of return expected by infrastructure investors, and the tab
:45:58. > :46:00.is being picked up for the next 35 years by the electricity
:46:01. > :46:05.In terms of transferring risk, it is one thing to transfer risk
:46:06. > :46:16.to a corporate entity or a partnership where
:46:17. > :46:19.you are confident that they are going to be able to deliver
:46:20. > :46:24.the goods, but there seems to be many questions
:46:25. > :46:28.hanging over whether in fact Hinkley Point could ever be
:46:29. > :46:31.delivered, so surely it has failed the test of being a well designed
:46:32. > :46:35.As you know, the Prime Minister is reviewing the Hinkley Point
:46:36. > :46:39.project and has promised to reach a decision by the end of this month.
:46:40. > :46:41.When I referred to well-designed, off-balance sheet transactions,
:46:42. > :46:47.I was talking specifically about the transfer of risk
:46:48. > :46:53.I believe the return, the assumed return
:46:54. > :47:00.But what one has to remember is that this project,
:47:01. > :47:05.as proposed, delivers something that has never been delivered by a civil
:47:06. > :47:08.nuclear project anywhere in the world.
:47:09. > :47:17.It transfers the design construction and operation risk entirely
:47:18. > :47:24.Now there is a very hefty insurance premium in there.
:47:25. > :47:33.And that is why the rate of return may look high.
:47:34. > :47:35.But if the project doesn't generate electricity,
:47:36. > :47:39.it will never generate a penny of return.
:47:40. > :47:45.If it generates late, that will be a penalty suffered
:47:46. > :47:51.by the investor, the provider, not by the taxpayer or energy consumer.
:47:52. > :47:54.And indeed, the way the project is structured, there is a penalty
:47:55. > :47:57.for late delivery in the price structure.
:47:58. > :48:15.So not only do they suffer a deferred return on their capital
:48:16. > :48:17.investment, but they will suffer a lower price if the project
:48:18. > :48:21.So I think it does meet the criteria for a well-designed
:48:22. > :48:25.In an area where risk has never been effectively transferred
:48:26. > :48:26.from the buyer to the seller before.
:48:27. > :48:30.As part of the making the economy work for everyone,
:48:31. > :48:33.the government has said that they are going to have a strong
:48:34. > :48:58.And so I would like to explore with you how much
:48:59. > :49:00.that is a change from what was pursued under
:49:01. > :49:04.And if I may, I can divide that into two.
:49:05. > :49:06.The money aspect, which I think lands well and truly
:49:07. > :49:09.in your department, and there is perhaps a broader brush
:49:10. > :49:12.policy issue in terms of, what does that mean for policy change?
:49:13. > :49:14.Have you any comments and information on that?
:49:15. > :49:17.First of all, the industrial strategy is a new departure.
:49:18. > :49:33.The Department for Business Enterprise and the other thing...
:49:34. > :49:38.The department that has changed its name more than any other
:49:39. > :49:45.department in history is currently working up a strategy.
:49:46. > :49:48.The Treasury is obviously involved, but it is the lead innovation
:49:49. > :49:49.Department for enterprise and innovation schools.
:49:50. > :49:56.And in due course, there will be a consultation document published.
:49:57. > :50:00.But the underlying focus is that this economy,
:50:01. > :50:05.although it has done some remarkable things over the last years,
:50:06. > :50:08.it has delivered 2.7 million new jobs, a remarkable achievement,
:50:09. > :50:09.especially when compared with the performance
:50:10. > :50:14.in some of our principal competitors in Europe.
:50:15. > :50:20.What it has not delivered is growing productivity.
:50:21. > :50:25.And what we most urgently need now to focus on is growing
:50:26. > :50:28.the productivity performance of the economy, in order to support
:50:29. > :50:35.rising real wages and rising living standards.
:50:36. > :50:42.There is no other sustainable way to deliver rising living standards
:50:43. > :50:50.on a sustained basis than growing productivity.
:50:51. > :50:54.And we consider that a more active approach to industry is required,
:50:55. > :51:02.Including looking at the remarkable disparity between productivity
:51:03. > :51:05.performance in London and the South East, and the other
:51:06. > :51:16.Including observing that unlike many competitor countries,
:51:17. > :51:22.our secondary cities have very considerably poorer productivity
:51:23. > :51:28.And by addressing those disparities, it is not that the UK
:51:29. > :51:31.economy does not know how to deliver productivity.
:51:32. > :51:34.London and the South East are as productive as any region
:51:35. > :51:39.But we have not worked out how to spread that productivity
:51:40. > :51:43.performance more evenly across the economy.
:51:44. > :51:51.And that is the key challenge that we need to address.
:51:52. > :52:00.So it is a bit like the Northern Powerhouse type of thing?
:52:01. > :52:03.The Northern Powerhouse project is a project which seeks
:52:04. > :52:07.to harvest the benefits of agglomeration.
:52:08. > :52:10.It observes that there four great Northern cities,
:52:11. > :52:17.which are close enough together, given enhanced
:52:18. > :52:20.transport links and they have pretty poor transport links between them
:52:21. > :52:24.at the moment, to create a single Labour market, a single goods
:52:25. > :52:28.Economic theory tells us we should expect to see a transformation
:52:29. > :52:30.in productivity performance of that agglomerated economy.
:52:31. > :52:38.So that is the principle behind Northern Powerhouse.
:52:39. > :52:41.But there are other focuses around the country, which are equally
:52:42. > :52:46.susceptible to support, to achieve higher productivity performance.
:52:47. > :52:54.I think the statistic is that if we were able to spread,
:52:55. > :53:00.if we were able to close by 50% the gap between the productivity
:53:01. > :53:03.of London and the South East, and the rest of England,
:53:04. > :53:08.we would increase GDP by ?300 billion.
:53:09. > :53:11.That's a remarkable figure and a remarkable potential for us
:53:12. > :53:20.Chancellor, given what you have said about the lack of productivity,
:53:21. > :53:32.the lack of connectivity between those four cities,
:53:33. > :53:36.is it more sensible to do the East- West rail line ahead of the south?
:53:37. > :53:43.It is important to do both and my predecessor made clear
:53:44. > :53:46.the government wants to press ahead with the East-West route.
:53:47. > :53:56.And in fact, a sum of money, I cannot remember if it was ?50
:53:57. > :53:58.million, ?80 million, that was made available
:53:59. > :54:02.So, you would expect them to go forward simultaneously?
:54:03. > :54:05.HS2 is a long-term project, it will take a decade
:54:06. > :54:14.HS2, I suspect that the West Pennine railway may be a shorter duration
:54:15. > :54:16.project, although I am not an expert.
:54:17. > :54:20.We do not have a validated plan for it yet.
:54:21. > :54:23.If I could go back onto the policy aspect, does that mean
:54:24. > :54:26.that the industrial strategy would not be looking at things such
:54:27. > :54:41.And whether sometimes, certain companies shouldn't be
:54:42. > :54:44.taken over because one can't actually deliver,
:54:45. > :54:46.or the companies that take them over cannot deliver
:54:47. > :54:51.on many of the promises that they make at the point of takeover?
:54:52. > :54:54.Well, we have a much more robust system for securing commitments
:54:55. > :55:09.We have applied that system in relation to the recent takeover
:55:10. > :55:36.by Softbank, where those commitments are made in a form
:55:37. > :55:38.are enforceable through the takeover panel.
:55:39. > :55:41.I am not going to set out in detail what the industrial strategy
:55:42. > :55:44.is going to include, the Prime Minister has made it clear
:55:45. > :55:47.that while we welcome investment from overseas in the UK,
:55:48. > :55:51.and indeed we need investment from overseas
:55:52. > :55:54.in the UK, we are interested in investment that will grow
:55:55. > :55:58.We are not interested in asset strippers coming in and buying up
:55:59. > :56:03.And I think you can anticipate that that view will be expressed
:56:04. > :56:07.As a final point, could I ask you whether you would think that
:56:08. > :56:10.you might be prepared to find more money for things
:56:11. > :56:13.like the British Business Bank, and also, would you be extending
:56:14. > :56:16.the sort of guarantees that are envisaged under Brexit
:56:17. > :56:18.to funding channels, currently coming in through the IB
:56:19. > :56:25.First of all, the British Business Bank is already delivering
:56:26. > :56:27.and supporting over ?7.5 billion of investment,
:56:28. > :56:34.So it is doing a significant job already.
:56:35. > :56:40.The lending from EIB, we will watch very carefully.
:56:41. > :56:50.Britain remains a full member of the European Union,
:56:51. > :56:52.and we expect that projects from the UK will be
:56:53. > :56:55.treated absolutely on their merits, and the UK historically,
:56:56. > :56:57.because we deliver strong projects, has done disproportionately well
:56:58. > :57:05.We expect that EIB funding to UK projects will continue right up
:57:06. > :57:09.to the point of departure from the European Union.
:57:10. > :57:13.And obviously as part of the process of exiting the EU,
:57:14. > :57:19.we will have to put in place appropriate alternative arrangements
:57:20. > :57:25.for not just EIB, but for every, but for everything for which we are
:57:26. > :57:50.currently dependent upon an EU structure or institution.
:57:51. > :57:52.I am delighted you raised the European Union.
:57:53. > :57:54.I wanted to talk to you about Brexit.
:57:55. > :57:57.I didn't want to ask you what it means.
:57:58. > :57:59.You can ask me what it means if you like!
:58:00. > :58:02.I think I know the answer to that one.
:58:03. > :58:05.I want to ask you what you would like it to mean.
:58:06. > :58:09.Mr Davies told the House of Commons on Monday that it was very
:58:10. > :58:12.improbable that the United Kingdom could remain in the single market,
:58:13. > :58:15.and Lord Lawson told Times readers last week that it was highly
:58:16. > :58:17.undesirable to remain in the single market.
:58:18. > :58:20.The aim should be to get out as soon as possible,
:58:21. > :58:21.and deregulate much further and faster.
:58:22. > :58:25.You told the BBA in July that it was in the interest
:58:26. > :58:28.of the UK and the other member states to keep things
:58:29. > :58:35.So I deduce that you don't agree with Mr Davies and you don't
:58:36. > :58:37.agree with Lord Lawson, and you yourself would
:58:38. > :58:40.like for financial services to see us remain in or as close
:58:41. > :58:49.to the single market as possible, am I right?
:58:50. > :58:58.First of all, I should make clear that you're quoting my remark
:58:59. > :59:02.at the BBA which was on the evening of the 12th of July,
:59:03. > :59:05.the day before I was appointed to this role, so I was speaking
:59:06. > :59:08.as Foreign Secretary rather as Chancellor of the Exchequer.
:59:09. > :59:11.I certainly got a smaller office as a consequence
:59:12. > :59:22.One of the things we've got to get away from here is talking
:59:23. > :59:28.as if there is only pre-existing model.
:59:29. > :59:30.And we have to use the pre-existing models and language.
:59:31. > :59:33.The UK is not Norway, it's not Switzerland,
:59:34. > :59:35.We are the world's fifth-largest economy.
:59:36. > :59:43.The arrangements that we negotiate with the European Union
:59:44. > :59:49.I have no doubt whatsoever about that.
:59:50. > :59:53.The point I was making to the BBA is that there are very good reasons
:59:54. > :59:57.to think that it is in the interests of the overall economies
:59:58. > :00:03.of the European Union countries, as well as the UK economy
:00:04. > :00:07.London, as Europe's financial centre, remains broadly as it is.
:00:08. > :00:12.I know it's probably become quite fashionable among public opinion
:00:13. > :00:15.to think that banks mainly exist to trade with themselves,
:00:16. > :00:21.They exist to support the real economy.
:00:22. > :00:24.The financial services market is there essentially to support
:00:25. > :00:28.London's financial services market supports the real economy
:00:29. > :00:31.across Europe, and not just in the UK.
:00:32. > :00:38.German car manufacturers, Italian manufacturers of consumer
:00:39. > :00:41.white goods, use the City of London to deliver finance and financial
:00:42. > :00:46.services, and I believe that the structures that we have
:00:47. > :00:50.in London, very complex ecosystem of banks, funds,
:00:51. > :00:53.insurance companies, law firms, business services firms,
:00:54. > :01:00.would not and could not be replicated anywhere else.
:01:01. > :01:07.And to break it up or to try to damage it in the pursuit of some
:01:08. > :01:10.very narrow and hypothetical national advantage, would be a huge
:01:11. > :01:17.mistake for any of our European Union partners to follow.
:01:18. > :01:20.I genuinely believe that London delivers not only for the UK,
:01:21. > :01:25.but for the European Union as a whole.