10/09/2016 BBC Parliament on BBC Two

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.