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.
Browse content similar to 10/09/2016. Check below for episodes and series from the same categories and more!
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.