10/09/2016 BBC Parliament on BBC Two


Chancellor of the exchequer, Philip Hammond MP, giving evidence for the first time in his new role to the Lords Economic Affairs Committee. From Thursday 8th September.

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Well Chancellor, can I welcome you to the House


Congratulations on your appointment and I hope you've got over your jet


I gather you want to make a few opening remarks?


Well, I just, with your permission, wanted to make a brief statement,


if I may, to take advantage of the fact that I am in Parliament,


to inform Parliament that I have decided to give my first


Autumn Statement to Parliament on the 23rd of November 2016.


The Autumn Statement will set out the Government's economic and fiscal


plans, based on the latest forecasts from the Office for Budget


In the run-up to the Autumn Statement, I will be engaging


with Britain's business leaders, employee representatives,


through a series of industry round tables, meetings and visits,


and of course, I will engage with Parliamentary colleagues.


I'm sure a number of the topics we will want to ask you about today


will of course be relevant to the Autumn Statement,


and we are very keen to hear your thinking


and your general approach to some of the key issues.


Perhaps I can start off though with housing,


which as you know we published a report on housing just


Our conclusion was that in order to meet demand,


catch up on unmet demand, and also to moderate house price


rises and make house prices over time more affordable to young people


who are seeking to buy homes, we would need to build 300,000 homes


a year, which is about 50% above the government's current target.


In order to achieve that, local authorities would have to play


And there would need to be a shift of emphasis away from houses


for sale to social housing, to meet a larger need in that area.


And we would very much welcome your thoughts


on those conclusions, and in particular, what arrangements


you could contemplate to enable local authorities to take advantage


of the historically low long-term interest rates, to invest in social


housing in partnership with the private sector


Which of course would generate income, over a considerable


I welcome the central recommendation of your report,


which is that we need to increase housing supply.


The government is committed to increasing house-building.


It won't surprise you to know that this is an area


Both because it goes to the heart of the Prime Minister's agenda


of creating an economy that works for everybody.


Too few people are able to get onto the housing ladder,


and too few people are able to access


appropriate housing, whether by purchase or for rent.


There are a number of aspects to that problem.


It is also, of course, a macro economic problem.


It has a huge impact on the overall functioning of the economy,


It's an area that has our full attention at the moment.


In due course, we will announce how we intend to proceed.


But I can confirm that we share the committee's analysis,


that there needs to be an increase in the rate of house building.


We want to see a diversity of tenure types available, and we will bring


forward policy announcements in due course.


That's all I can really say at the moment.


Do you share our recommendation and enthusiasm for local authorities


to resume their historic role and play a significant part?


And if so, how would they finance that?


Because the housing revenue account has some rather curious limits


and the way it enables local authorities to build swimming pools,


apparently any number of swimming pools, but not build houses,


which seems to be a rather perverse outcome of the current rules.


There is head room in existing housing revenue account authorities.


There is, I'm told, ?3.4 billion of borrowing headroom


underneath the cap, and a ?300 million extension to HRA borrowing


limits that was announced in AS13 and was undersubscribed.


I'm not convinced it is lack of access to borrowing


that is preventing local authorities from building.


We will certainly look at local authorities,


registered social landlords, and the private sector,


and indeed, the corporate sector, as being potentially parties who can


play a part in dealing with the country's overall housing needs.


But I think we all know that this is not primarily


It's a land availability challenge that we have to address in order


to bring down house prices to affordable levels,


Well, that wasn't the evidence that we heard.


There is a large number of permission homes granted every


A great deal of public land which could be pressed into service


to be building houses was very slow in becoming available.


So again, there is a role for the government there.


We felt the Treasury with its new infrastructure


commission, would be able to play a role of driving


The Housing Implementation Task Force, which oversees the release


of public sector land, is attended by the Chief Secretary.


I have some experience of this from my days as Secretary


of State for Defence, the biggest release of land


The challenge is that many of the sites that government


has available for release are very, very large strategic sites.


RAF airfields perhaps, quite a long way from


They may over time deliver very large numbers of housing units,


but they will require very large amounts of infrastructure


and inevitably, need phased development.


If I could also make a couple of observations,


one of the challenges in addressing the discrepancy between planning


permissions granted and planning permissions built is the tendency


of local authorities, and I completely understand why


they find it convenient to do so, to meet their housing needs


by releasing a small number of very large sites,


often sites that need very significant infrastructure


Inevitably, that leads to a lack of competition in local markets


because you have effectively a monopoly supplier controlling


And the other point is that there is not any such thing


Housing markets are highly local, and there is overall a mismatch


between where the planning permissions are being granted


and where the hotspots of demand exist.


The reality is that we have to address some very challenging


questions of how we deliver increased housing availability


in the areas where the high levels of housing demand exist.


As you go through your consultation process for the Autumn Statement,


I would humbly suggest you should consider discussing this with local


authorities, who show a great deal of enthusiasm to get building.


They obviously have a great deal of local knowledge but they don't


have the finance to do it, and feel that is a pressing pressure


that they want the Treasury to address.


Chancellor, I want to start by asking you what you said


about resetting economic policy.


I'm interested in your view on the balance between what monetary


policy can do and what fiscal policy can do.


In particular, do you accept that monetary policy has possibly


run its course in this country and probably in Europe as well,


and that as interest rates come near zero or below zero in some


cases, if you really want to put money into the economy,


then it's fiscal policy that is likely


I wonder if I can just draw you on where you stand


The comment I made was that we would have an opportunity


By which I was referring to the fact that the Prime Minister has made


clear that we will no longer be seeking


to reach a fiscal surplus in 2019-2020.


Clearly, we need to put a new fiscal framework in place to guide policy


Clearly, monetary policy is the remit of the Bank of England,


and I don't want to say anything that might undermine their clear


responsibility and independence in this area.


The governor has made it quite clear that he thinks he does


have further ammunition in the bank's locker.


Not only in terms of rate reduction, but in terms


I think that monetary policy can and should operate alongside fiscal


The bank was the first mover, if you like, after the shock


to the economy of the referendum exit vote.


I will have an opportunity on the 23rd of November to consider


whether a fiscal response is appropriate, alongside that


And I think both policy levers are valid and have a role to play.


I appreciate the point you made about a reset.


The government was never going to hit that particular target,


I just want to draw you on the fiscal aspect.


I am not asking you to say what you will do.


Would you be prepared, or do you think it would be right


that if we are wanting to put more money into the economy to get


the economy going and put the inflation rate up,


it's more likely than not it is fiscal policy that will do it,


rather than what is left in the monetary policy locker?


I would certainly agree that fiscal policy can play a role.


In relation to fiscal policy, do you believe that you should be


looking at infrastructure projects, targeting tax measures on those


who will spend the money, rather than those who will save it.


If there is a need at any time to deliver a fiscal stimulus


for broader reasons, it has to be well designed.


It has to be limited in duration, quick in delivering effect,


and given our overall fiscal position, which is still unhealthy,


ideally, it will be contributing to the long-term investment needs


of the country, contributing to the challenge of raising


And therefore, I would hope that in designing a fiscal stimulus,


any sensible Chancellor would seek to do as much as possible


through investment, that will not only deliver short-term demand


about the Bank of England's predictions which were included


We were told we would have higher interest rates, technical recession


recessions, and employment would go up and House prices would fall.


Are you not concerned that the whole question about Q E,


that you made clear this morning, now resides


which is having a real impact, as Lord Lamont has suggested.


I looked at the numbers, and if you look at the House price


to earnings ratio from the last quarter of 2012 to the last quarter


of 2015, it has increased by 4.2 times to 6.9 times


and in Greater London, 5.9 times to 6.12 times.


Are you not concerned that Q E is resulting,


the latest tranche of Q E will need to be put into final


That huge vacuum of money which is based on artificially low


interest rates, which would otherwise be invested in jobs


and creating a growth in the economy.


Have we not actually got to the stage where the bank


is effectively running economic policy in a way,


which is to the disadvantage to the Government's declared


objective to make wider homeownership available,


and also enable wealth to be spread more equally,


when it's actually taking wealth away from, if I can use


the phrase, ordinary, hard-working people,


to people who have substantial assets.


As Chancellor, shouldn't you get a grip on it?


It is the case that Q E is built upon the principle of causing asset


I think we could have a long debate about what is happening


I have no doubt that in the end, it's about supply,


If the supply of land for housing is increased,


no amount of monetary inflation is going to force prices to rise


The situation we have got in the UK has been,


increasing money supply, and very constrained resource


Obviously, creating an artificial asset price for inflation.


On the wider point, the monetary policy committee obviously has


responsibility for monetary policy decisions.


But as we've already rehearsed, the governor does require


the consent of the Treasury for unconventional monetary stimulus.


They can't do it without the Treasury's agreement.


I think it would be wrong to characterise this as the bank


I was responding to the point you made that you


I don't want to comment publicly on a matter


which is a responsibility of the monetary policy committee.


But I draw attention again that there are no steps of positive


easing that the bank can take, without seeking the approval


Just on the housing point, finally, and I take your point


As you say, it is very complicated, but if the house price to earnings


ratio has doubled in three years, in London, that can't just be


There are other factors involved here, and similarly,


could you address the point about the pension funds?


For example, would you consider extending the period,


which at the present time companies have got to deal with any deficit


Would you consider extending that period, given that we are in


a highly than usual period and interest rates


yes, I am sorry. I should have answered that question.


I did ask the question myself, what has been the impact on funded


And the response that I have received,


the advice I have received, is that the additional underfunding


is not thought likely to give rise to any


That there are no pressures for action coming from anywhere


because of the fact that this is something that needs to be


It doesn't require immediate action, and in the context of the overall


pension deficit, it is not a step change.


It is also the case that corporations collectively


have a very substantial amount of cash


in their balance sheets, and so I would challenge the notion


that every pound required to close the pension fund deficit is a pound


snatched away from investment in productive capacity.


It is taken away from cash and balance sheets very often.


You talked about that being a role for both fiscal


And of course for much of the 1980s, the way this tended to be put


was wanting to have a fiscal policy that supported monetary policy.


In those days, the job was to get inflation down.


Now, the problem seems to be to get inflation back up to the target.


Is it not therefore the case, given where we are,


that monetary policy does need some support?


I mean interest rates must be very close to the limit.


We've heard from Lord Lamont about some of the distortions


Instead of thinking about this as being two policy instruments,


is it not the case that monetary policy really does now


That the Bank of England is really running out of room to pursue


First of all, the difference in the 1980s was that we did both


monetary and fiscal policy at the time.


As to your point about the turnaround in inflation,


it is important that the Bank of England's inflation target


We see inflation too low as being as damaging


to the economy in the long term as inflation too high.


I can only repeat what the governor has said.


He has said that there is further capacity,


the bank has further capacity in all three areas.


That it has used as levers of monetary policy,


that the bank's view of the floor limit on interest rates


is a number which is positive, but very close to zero.


And therefore, there is more that the Bank believes it can


We also clearly, depending on the fiscal rules that we set,


can create at Autumn Statement, headroom for fiscal stimulus,


if we believe it is appropriate to do so.


Indeed, we can create headroom for fiscal stimulus


whether we decide that fiscal stimulus is appropriate


It would be perfectly possible to design a set of fiscal rules that


provides headroom, without necessarily using that


Could I press on one aspect of this, in the sense of very


Obviously you can't say much more about fiscal policy at this stage,


given that we have the Autumn Statement.


But do you have any response to the general idea put forward


at a time when interest rates are as low as they are,


that really the government should avoid this pursuit of off-balance


sheet funding which it is tried on a number of occasions,


using private finance to do what our public sector projects,


and often in more expensive ways than could be done


And is this not a time when we should be saying,


well, the government is in a very strong position of being able


to borrow on its own account and it should not


be looking far and wide for various schemes to really lay off


the problem about public sector debt measures?


I think, in terms of low borrowing costs, and the choice


between publicly funded and privately funded...


public sector projects, I am talking about.


Is never going to revolve around the relative cost of finance


because the government's cost of finance will always be cheaper


than the private sector's cost of finance.


In well-designed off-balance sheet projects, the real worry


is transferring risk to the private sector partner.


And although there are in theory, ways of transferring some elements


of that risk to a private sector contractor partner,


for example, while financing on balance sheet, the reality


is if you are financing on balance sheet, the risk always bounces back


So I think, for me, it's always been the case and remains the case


that the argument for off-balance sheet financing has to be


constructed around the transfer of risk rather than simply


the losing of the inconvenience of the debt going


We were looking recently at an issue of the student loan book


and the question of the sale of that.


And we struggled very hard to see where the risk transfer


was that was taking place in this area.


And very much thought this seemed to be an approach


that was being designed almost entirely to keep


Well, I mean the government has a certain borrowing capacity.


PSN D as a percentage of GDP is not an irrelevant number.


Our policy has been and will remain that where assets in the government


balance sheet serve no policy purpose, they should be disposed


of in order to create headroom for policy driving investment.


And in the case of the student loan book, the policy is achieved


without the need to have the asset sitting on the balance sheets


by the government, underwriting effectively the expected default


rate, the expected non-repayment element of the student loan book.


So I think the policy intention to dispose of the student loan book


Obviously, the timing of that decision will be subject


Just a quick question on the housing market, Chancellor.


You believe it is a question of supply and demand.


Do you think the government schemes for effectively subsidising


homeownership, skew the market in a way that's not helpful?


Well, the current range of schemes we have in place is certainly


designed specifically to support homeownership.


We know that 90% of people aspire to own a home.


So in a sense, government policy is responding to the desires


and the aspirations of the electorate.


But we also know, don't we, that although 90% of people may


aspire to own a home, in reality, far less than 90%


of people will actually be able to own a home?


And it is important that we have a range of tenure types


which reflects the reality of the world, not just aspirations.


I'm very keen to see structures like shared ownership and rent


to buy playing an appropriate role in our overall housing market mix.


Would you agree that subsidising homeownership does inflate prices?


If you are referring to the starter home scheme,


as I understand the detail of the scheme, the homes that


will be delivered on a site, effectively displace what would have


been affordable homes delivered in another way perhaps,


affordable homes for rent, by focusing the subsidy


that is already implicit in the obligations developers


receive through section 106 agreements and so forth.


To focus them on delivering homes for ownership.


Help to buy similarly, helping people to get


onto the housing ladder is a conscious bias in favour


of ownership, reflecting the aspiration of 90%


As I said, we are looking in the round at housing


These are very complicated areas and we will announce any policy


Are you thinking that the objective of getting to surplus is retained


and you are simply looking at how long you take to do it,


or are you looking at the possibility that surplus itself


isn't necessarily the right end point for a society which has


poor infrastructure, can borrow at virtually no cost


at all, and has plenty of people willing to lend to the government?


And you said that the PSND needs to be brought down.


It can be brought, PSND, as a proportion of GDP,


it can be brought down without actually getting as far


as surplus, it can be done by having a borrowing requirement 2% or 3%


But you do not need to go all the way to generating a surplus


in order to achieve a decline in the debt GDP ratio.


If you have a borrowing requirement of 2-3% of GDP, unless you have


a consistent GDP growth rate above that level, your PSND


will not be going down, it will be going up.


I would suggest that the level of PSND as a ratio of GDP


that we are at at the moment, we are getting quite


to the level that might make a difference to the willingness


I don't think we should be cavalier about the levels of debt.


Perhaps I can help the noble lord by reminding him of what the Prime


Minister said at PMQs on the 20th of July,


she said: "We have not abandoned the intention to move


What I have said is we will not target that at the end


That is what I think is possibly a mistake,


Can I make one other point on the question of housing


If you are trying to get another 50,000 people over the line


into homeownership, but the supply of houses by private sector builders


does not increase, the only way that is resolved is that you get


50,000 people in, and house prices rise in order to discourage


a different 50,000 from getting on the ladder.


So this is an issue, housing supply increases at the same


time, this is a self defeating prophecy.


Well, I have already said I completely agree


with the committee's analysis that we need to significantly


increase house-building rates in this country.


And there are many challenges to doing that.


There's a planning challenge, a capacity challenge


But it's very clear that this is one of the factors.


If you're looking to answer the question, why does the UK


economy perform differently from other


comparable economies, particularly in productivity


performance, it seems logical to me to look at ways in which the UK


economy functions differently from other comparable economies.


The way our housing market functions is very clearly,


very different from the way the housing market


functions in France, Germany, the Netherlands,


And I think we should probably seek to draw lessons from that.


I want to put this question, when you said 90% of people aspire


I wonder whether you would expect that to change in the light


of a prolonged period of low inflation.


As you are aware, the propensity to homeownership does vary very


considerably amongst Western European economies.


It is a broad generalisation, those that have endured or suffered


bouts of high inflation in the period since the Second World


War, tend to have a high propensity for homeownership,


whereas those who have not suffered in that way,


such as Germany and the Netherlands, which you've mentioned,


tend to have a low propensity to homeownership.


Now for much of the lifetime of people around this table,


if not at the back of the room, there was a tax


incentive to own your own home through the mortgage arrangements.


Now we have had some period of low inflation,


and we might have a good deal more judging


I wondered whether in the light of that, you would expect


the propensity to home ownership to revert to the sort of levels


it is in some other countries and was indeed in this country,


I don't think there is any evidence that the aspiration


of years when we have had low inflation.


But clearly, when you buy a house, you are doing two things.


You are purchasing a place to live and using it as a place to live


and making an investment, which has historically turned out


The factors at work will be people's desire to own the home they live


in, which I think is a strong and deep rooted instinct,


independent of the investment performance of the asset.


It will be partly motivated by the likely return


I don't agree with you that housing is no longer a tax privilege,


a tax privileged class of investment, it is


It depends, arguably, the removal of schedule a taxation


greatly enhanced the tax advantages of owner occupation.


It is still a hugely privileged asset class.


And of course, people will also be influenced by alternative


I don't suppose the noble lord goes in pubs.


You will hear people saying, I do not put money in a pension,


People look at the after-tax attractiveness of different asset


classes, when they are looking at the propensity


The people I meet in pubs are looking for somewhere rent.


It is getting more and more difficult.


It depends on the class of pop you go to.


Going back to the scepticism about whether the borrowing rules


on local authorities are a real constraint,


the local authorities gave us evidence that suggests


they strongly thought it was a constraint.


If you don't think it is a constraint, then what would you do


in the important Autumn Statement, to ensure that local authorities


Because it is clear, if you look at foreign examples


like France, or our own past history, that the one


thing that has gone badly wrong in this country is that


while the private sector is still building roughly the same


number of houses, Housing Associations and local authorities


are not, and I wonder if one is the crack the supply problem,


What I am afraid I cannot do today is to tell you in response


to the question, what are you going to do in your Autumn Statement?


But I recognise the challenge and I have said already,


that local authorities, social landlords, corporates,


private house-builders, they all have to be part


I have already noted down the point about local authority borrowing


constraints, and I have not met with the LGA,


but I will take that question forward.


The hard evidence, which is the available borrowing


capacity in housing revenue account authorities,


suggests that maybe borrowing is not a constraint.


You have suggested that it is, and I will take that up


There are bits of it here and there with


I accept that and it would be important to understand how many


authorities there were chafing at the bit to build houses,


Just coming back to well-designed off-balance sheet transactions.


Focusing for a moment on Hinkley Point, which seems to be


being financed to generate a mere 10% return, probably twice the level


of return expected by infrastructure investors, and the tab


is being picked up for the next 35 years by the electricity


In terms of transferring risk, it is one thing to transfer risk


to a corporate entity or a partnership where


you are confident that they are going to be able to deliver


the goods, but there seems to be many questions


hanging over whether in fact Hinkley Point could ever be


delivered, so surely it has failed the test of being a well designed


As you know, the Prime Minister is reviewing the Hinkley Point


project and has promised to reach a decision by the end of this month.


When I referred to well-designed, off-balance sheet transactions,


I was talking specifically about the transfer of risk


I believe the return, the assumed return


But what one has to remember is that this project,


as proposed, delivers something that has never been delivered by a civil


nuclear project anywhere in the world.


It transfers the design construction and operation risk entirely


Now there is a very hefty insurance premium in there.


And that is why the rate of return may look high.


But if the project doesn't generate electricity,


it will never generate a penny of return.


If it generates late, that will be a penalty suffered


by the investor, the provider, not by the taxpayer or energy consumer.


And indeed, the way the project is structured, there is a penalty


for late delivery in the price structure.


So not only do they suffer a deferred return on their capital


investment, but they will suffer a lower price if the project


So I think it does meet the criteria for a well-designed


In an area where risk has never been effectively transferred


from the buyer to the seller before.


As part of the making the economy work for everyone,


the government has said that they are going to have a strong


And so I would like to explore with you how much


that is a change from what was pursued under


And if I may, I can divide that into two.


The money aspect, which I think lands well and truly


in your department, and there is perhaps a broader brush


policy issue in terms of, what does that mean for policy change?


Have you any comments and information on that?


First of all, the industrial strategy is a new departure.


The Department for Business Enterprise and the other thing...


The department that has changed its name more than any other


department in history is currently working up a strategy.


The Treasury is obviously involved, but it is the lead innovation


Department for enterprise and innovation schools.


And in due course, there will be a consultation document published.


But the underlying focus is that this economy,


although it has done some remarkable things over the last years,


it has delivered 2.7 million new jobs, a remarkable achievement,


especially when compared with the performance


in some of our principal competitors in Europe.


What it has not delivered is growing productivity.


And what we most urgently need now to focus on is growing


the productivity performance of the economy, in order to support


rising real wages and rising living standards.


There is no other sustainable way to deliver rising living standards


on a sustained basis than growing productivity.


And we consider that a more active approach to industry is required,


Including looking at the remarkable disparity between productivity


performance in London and the South East, and the other


Including observing that unlike many competitor countries,


our secondary cities have very considerably poorer productivity


And by addressing those disparities, it is not that the UK


economy does not know how to deliver productivity.


London and the South East are as productive as any region


But we have not worked out how to spread that productivity


performance more evenly across the economy.


And that is the key challenge that we need to address.


So it is a bit like the Northern Powerhouse type of thing?


The Northern Powerhouse project is a project which seeks


to harvest the benefits of agglomeration.


It observes that there four great Northern cities,


which are close enough together, given enhanced


transport links and they have pretty poor transport links between them


at the moment, to create a single Labour market, a single goods


Economic theory tells us we should expect to see a transformation


in productivity performance of that agglomerated economy.


So that is the principle behind Northern Powerhouse.


But there are other focuses around the country, which are equally


susceptible to support, to achieve higher productivity performance.


I think the statistic is that if we were able to spread,


if we were able to close by 50% the gap between the productivity


of London and the South East, and the rest of England,


we would increase GDP by ?300 billion.


That's a remarkable figure and a remarkable potential for us


Chancellor, given what you have said about the lack of productivity,


the lack of connectivity between those four cities,


is it more sensible to do the East- West rail line ahead of the south?


It is important to do both and my predecessor made clear


the government wants to press ahead with the East-West route.


And in fact, a sum of money, I cannot remember if it was ?50


million, ?80 million, that was made available


So, you would expect them to go forward simultaneously?


HS2 is a long-term project, it will take a decade


HS2, I suspect that the West Pennine railway may be a shorter duration


project, although I am not an expert.


We do not have a validated plan for it yet.


If I could go back onto the policy aspect, does that mean


that the industrial strategy would not be looking at things such


And whether sometimes, certain companies shouldn't be


taken over because one can't actually deliver,


or the companies that take them over cannot deliver


on many of the promises that they make at the point of takeover?


Well, we have a much more robust system for securing commitments


We have applied that system in relation to the recent takeover


by Softbank, where those commitments are made in a form


are enforceable through the takeover panel.


I am not going to set out in detail what the industrial strategy


is going to include, the Prime Minister has made it clear


that while we welcome investment from overseas in the UK,


and indeed we need investment from overseas


in the UK, we are interested in investment that will grow


We are not interested in asset strippers coming in and buying up


And I think you can anticipate that that view will be expressed


As a final point, could I ask you whether you would think that


you might be prepared to find more money for things


like the British Business Bank, and also, would you be extending


the sort of guarantees that are envisaged under Brexit


to funding channels, currently coming in through the IB


First of all, the British Business Bank is already delivering


and supporting over ?7.5 billion of investment,


So it is doing a significant job already.


The lending from EIB, we will watch very carefully.


Britain remains a full member of the European Union,


and we expect that projects from the UK will be


treated absolutely on their merits, and the UK historically,


because we deliver strong projects, has done disproportionately well


We expect that EIB funding to UK projects will continue right up


to the point of departure from the European Union.


And obviously as part of the process of exiting the EU,


we will have to put in place appropriate alternative arrangements


for not just EIB, but for every, but for everything for which we are


currently dependent upon an EU structure or institution.


I am delighted you raised the European Union.


I wanted to talk to you about Brexit.


I didn't want to ask you what it means.


You can ask me what it means if you like!


I think I know the answer to that one.


I want to ask you what you would like it to mean.


Mr Davies told the House of Commons on Monday that it was very


improbable that the United Kingdom could remain in the single market,


and Lord Lawson told Times readers last week that it was highly


undesirable to remain in the single market.


The aim should be to get out as soon as possible,


and deregulate much further and faster.


You told the BBA in July that it was in the interest


of the UK and the other member states to keep things


So I deduce that you don't agree with Mr Davies and you don't


agree with Lord Lawson, and you yourself would


like for financial services to see us remain in or as close


to the single market as possible, am I right?


First of all, I should make clear that you're quoting my remark


at the BBA which was on the evening of the 12th of July,


the day before I was appointed to this role, so I was speaking


as Foreign Secretary rather as Chancellor of the Exchequer.


I certainly got a smaller office as a consequence


One of the things we've got to get away from here is talking


as if there is only pre-existing model.


And we have to use the pre-existing models and language.


The UK is not Norway, it's not Switzerland,


We are the world's fifth-largest economy.


The arrangements that we negotiate with the European Union


I have no doubt whatsoever about that.


The point I was making to the BBA is that there are very good reasons


to think that it is in the interests of the overall economies


of the European Union countries, as well as the UK economy


London, as Europe's financial centre, remains broadly as it is.


I know it's probably become quite fashionable among public opinion


to think that banks mainly exist to trade with themselves,


They exist to support the real economy.


The financial services market is there essentially to support


London's financial services market supports the real economy


across Europe, and not just in the UK.


German car manufacturers, Italian manufacturers of consumer


white goods, use the City of London to deliver finance and financial


services, and I believe that the structures that we have


in London, very complex ecosystem of banks, funds,


insurance companies, law firms, business services firms,


would not and could not be replicated anywhere else.


And to break it up or to try to damage it in the pursuit of some


very narrow and hypothetical national advantage, would be a huge


mistake for any of our European Union partners to follow.


I genuinely believe that London delivers not only for the UK,


but for the European Union as a whole.


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