On Sunday 6 September Andrew Marr interviewed George Osborne MP, Shadow Chancellor. Please note 'The Andrew Marr Show' must be credited if any part of this transcript is used. Shadow Chancellor George Osborne says the City regulator should veto big bonuses. ANDREW MARR: Well six months ago, Gordon Brown and his fellow G20 leaders were on a mission - you may recall - to save the world. The message yesterday at the end of their meeting in London was that they seem to have succeeded in stabilising the global economy, although the patient is still on life support and they've agreed to control bank bonuses. Though they haven't agreed how, still less how much. From the Tories, however, the message is that the UK could still be one of the last developed countries to pull out of recession. The Shadow Chancellor, George Osborne, joins me now. Welcome. Can I ask, first of all, about the G20 finance meeting? Two things, above all, came out of that. The first was that they were going to press ahead with putting money into their economies, that the reflationary drive would carry on. The Conservative position, as I understand it, is that certainly in this country that's wrong; that we have spent so much money already that we shouldn't be spending any more, and that in effect the recovery's already secure enough. GEORGE OSBORNE: No, I mean I don't think that's a fair characterisation. I wouldn't say the recovery's secure. Indeed this country is still in recession - unlike France, unlike Germany, unlike Japan - so Gordon Brown's claim that Britain was better prepared is about as ridiculous as his claim that we abolished boom and bust. But we say the most effective form of stimulus is monetary policy, is the low interest rates, which both here and around the world I think have been the most effective tool at bringing the world back from the brink of depression. Now there's a separate issue then about fiscal stimulus, and, frankly, the difference between Britain and countries like France and Germany is that we have an absolutely enormous budget deficit. And our argument has always been that unless you have a credible plan to deal with that deficit, that will threaten the recovery because people, including international investors, will look to the UK and say hold on, they have a massive budget deficit and no plan to deal with it, and that will damage investment and confidence in the recovery. ANDREW MARR: So you would be reining back spending if you were in power now? GEORGE OSBORNE: Well I'm clear that in the next financial year, in the year 2010 onwards, it is not acceptable to go ahead with a £30 billion increase in public spending, which is what Gordon Brown currently plans, although I'm not the Chancellor happens to agree with him. But Gordon Brown is sticking with this £30 billion increase in public spending and frankly his argument falls apart because he says, "Look, I hope the economy's going out to be out of recession this year" and yet he's still planning for next year and beyond to increase spending. And someone has to say enough is enough. This country has got to live within its means and if we don't get on top of the debt, it is not just you and I who will be paying for this in higher taxes and businesses who will be paying higher taxes and are unable to employ people. It's in the end our families and our children and our future generations who are going to be burdened with this debt. ANDREW MARR: I want to come back to spending in a minute - but just on the G20 issue again, the other area was bankers' bonuses and there was an agreement that bankers' bonuses have to be reined in but each country's going to do it in a slightly different way. I'm unclear, and I think a lot of people are, about exactly where the Conservative party stands on bankers' bonuses. Should there, for instance, be an actual cap? GEORGE OSBORNE: Well I'm not sure an actual cap on the amount of bonus works in the modern global economy, and I don't think we want to reintroduce a prices and incomes policy which failed us in the 1970s and I don't think would work in the 21st century. But I'm absolutely clear that it is unacceptable that banks use the taxpayers' support they've been given - not just the ones that got the direct bailouts, but the ones that had the bank guarantees and the like … ANDREW MARR: Barclays and others who weren't part of that. GEORGE OSBORNE: Using that taxpayers' support to pay bankers instead of to rebuild their balance sheets and become healthy again is actually an affront to public policy. It's not about greed and envy. It is about what we want from our banks. And the reason why the taxpayer stepped in and bailed them out and supported them - unlike Woolworths and other companies that have gone bust in this recession - is because we needed a functioning banking system, and a functioning banking system means strong balance sheets, not big bonuses. ANDREW MARR: I can understand your irritation and I'm sure a lot of people watching can as well. What I don't understand is how you're going to take action on this. GEORGE OSBORNE: Right. Well, first of all, the government and the regulator has a huge amount of leverage. First of all, we own half the banks. Second of all, we're guaranteeing activities in the other half of the banks. ANDREW MARR: So we should be threatening them: "If you don't pay these bonuses, we will pull the rug"? GEORGE OSBORNE: (over) I think, I think the regulator - and it's one of the reasons I want a strong financial regulator in the shape of the Bank of England - should be very, very clear that it is not acceptable and they will not sign off on pay packages and bonus packages that put money into bankers' pay instead of money into the bank balance sheets, so that they can lend normally in the economy and support our economy more broadly. ANDREW MARR: (over) But is it the job of a regulator to decide how much individuals are paid? GEORGE OSBORNE: It's the job of the regulator to make sure that a bank is spending the money that is being provided by the taxpayer or being earned off the back of taxpayer guarantees is being used to build up that bank's balance sheet and make that bank healthy again; not to pay millions of pounds of bonuses. And … ANDREW MARR: I still … Sorry, I still don't understand in concrete terms. Take Barclays. Barclays are paying large bonuses again. GEORGE OSBORNE: Yeah. ANDREW MARR: They're not directly owned by the taxpayer, though they were part of the general system of help. They say well this is what we're going to do, George Osborne. We are an independent bank, we are a proud bank, we have our own structures. We're going to go ahead and do it and, frankly, we're not interested in what you say. What do you say back to them? What do you actually do? GEORGE OSBORNE: Well, first of all, I would say Barclays, like other banks - I'm not making a particular case of Barclays here - Barclays, like other banks, depends on interbank guarantees provided by you and me and every taxpayer watching this programme. It depends on liquidity support, ultimately underwritten by the taxpayer. And, and … ANDREW MARR: (over) But you can't threaten those things because you threaten Barclays Bank. GEORGE OSBORNE: No, this is a regulated bank, regulated by the financial regulator, and the financial regulator should say to Barclays, "We will not sign off on this pay structure" if they think the pay structure is putting too much money into bank bonuses and not enough money into building up Barclays Bank or any other bank's balance sheet. ANDREW MARR: I just wonder where the real power lies here because, after all, you can't threaten anything which is going to bring down a bank or threaten a bank. GEORGE OSBORNE: No, the real power lies and should lie with the government and the regulator because we have large shareholdings in banks, we are providing guarantees to banks, we provide deposit insurance to banks. These are regulated entities that need the regulator to sign off on their activities. And you know Gordon Brown says, and has said repeatedly, "the era of the big bonus is over", and now he's signed this agreement is hailing it as a triumph. We will see. The test will come not in years time but in a few months time, at the end of this year and the beginning of this year, and we will see whether the mega bonuses are still being paid and we will see whether his action is actually delivering action on the ground. ANDREW MARR: Because there is a sort of philosophical difference as well. I mean somebody like Boris Johnson would say that the City of London depends upon huge bonuses and large amounts of money and a sense that it is not over regulated or over politicised. GEORGE OSBORNE: Well one of the reasons you want to try and get some international agreement here is you don't have a beggar-thy-neighbour approach between different financial centres on the things that matter for financial stability - like the amount of capital a bank's required to hold, like the scale of the bonuses. And, look, I'm someone who believes in the power of the free market and the like, but in financial services we don't have a straightforward free market. This is heavily underpinned by the British taxpayer. There are people watching this programme earning £15,000 a year or who have lost a job … ANDREW MARR: Yes. GEORGE OSBORNE: … and are unemployed at the moment, and they are not providing their taxes or paying their taxes to support the bonuses of people earning £1.5 million. ANDREW MARR: So is the idea … I still don't get it quite. So there's a banker who's going to be given a bonus of, I don't know, £10 million. The regulator goes to Barclays Bank and says, "I as the regulator think that this person should get £2 million, and if you allow him to get £10 million I'm going to somehow mess you up on the interbank lending rate"? GEORGE OSBORNE: No, the banks are regulated entities, regulated by the regulator. I would like the Bank of England to be the regulator because I think we need a regulator with more clout and authority. And you know any bank should submit its pay structure - not necessarily should Banker A be paid this amount, but the pay structure, the way they're going to award the bonuses this year - to the regulator, and the regulator needs to sign off on it. And if I were you know a strong and effective regulator, I would say, "No thank you. This year you should be using the money that you are earning, which is being earned on the back of taxpayer guarantees, to build up your balance sheet, to lend out to business in the economy; not to pay the large bonuses". And in the end … ANDREW MARR: Don't give Joe Bloggs that amount of money, or I won't what? GEORGE OSBORNE: They need to have their pay structure signed off by the regulator and you know that is … ANDREW MARR: Alright. GEORGE OSBORNE: You know and, as I say, we can also lead by example in the banks we do own. And you know you read stories that the Royal Bank of Scotland is hiring guaranteed bonus … hiring people on guaranteed bonuses of several million pounds … ANDREW MARR: (over) Wouldn't it be simpler … GEORGE OSBORNE: (over) … and that is, that's unacceptable too. So you know in other words the gov… ANDREW MARR: (over) Wouldn't it simply be easier to tax them? GEORGE OSBORNE: … the government has a huge number of tools available and you know a huge amount of leverage. So it's all very well for Gordon Brown and Alistair Darling to come on programmes like this and say we're going to do this. The proof will come in the pudding. The proof will come at the end of this year … ANDREW MARR: Okay … GEORGE OSBORNE: … and we will see whether Gordon Brown's promise to "end the era of the mega bonus" turns out to be true or not. ANDREW MARR: Let's return to spending because you've made it very clear there are going to be some hard choices ahead - and Philip Hammond, your number two, has said he expects his face to be a dartboard for the first year or so when these hard choices come - but we still don't really know what they are. Can you yet give us any examples of the areas where you think you can make specific real and substantial savings? I mean one of the areas that's been talked about is public sector pensions. GEORGE OSBORNE: Well, first of all, you know I think we have set out first of all a commitment to deal with the debt; a commitment to cut spending because that's required and the government are in a complete confusion about whether they're going to do that; and we've said the areas where we're looking at: public sector pay needs to be restrained; transfer payments, we need to look at that; and we've said something about tax credits to people earning over £50,000. We need to look at procurement and the like. On public sector pensions, first of all I think we should lead by example - I think the MPs pension scheme should be closed to new entrants - and we need to look at these mega pensions in the public sector, these fat cat pensions where people are retiring on huge payouts. And, what's worse, you get this revolving door where someone retires from a public sector job on a large pension and then is rehired, often by the same organisation, and so they receive the pay that they get on being rehired on a contract, plus the pension from their previous job at that organisation. That is totally unacceptable. We've got to end that revolving door principle. And actually the government have weakened some of the contracts in this area; made it easier for people to go through this revolving door … ANDREW MARR: Yes. GEORGE OSBORNE: … and I think this is about leading by example. You know you can't … ANDREW MARR: (over) So how do you … So again how do you do it? I mean the MP, Labour MP who chairs the relevant Commons committee, has suggested a £50,000 cap on all public sector pensions. GEORGE OSBORNE: Yeah, I'm not sure a crude cap works. I think in the contracts that are signed with public sector employees, we must make it clear that you cannot come back and work on a contract for an organisation you used to be working for, so that you can claim the pension and the … ANDREW MARR: (over) And extra cash. I understand that. GEORGE OSBORNE: … and that should be in the contract negotiated with these groups. Let's be clear. You know the nurse on the A&E ward, the soldier in Afghanistan, the firemen tackling that blaze last night - you know these people are doing incredibly tough jobs and they deserve a decent retirement - but we must lead by example with the highest paid people in our public sector, who frankly are abusing the system - it's not their fault, it's the system that allows them to undertake this abuse. That means MPs of course first and foremost with the most famous public sector pension scheme. We need to close that scheme to new entrants. ANDREW MARR: (over) So that's going to go, that's going to go. GEORGE OSBORNE: And, second, we must look at these fat cat public sector pensions, end this revolving door of people coming back to work for the same organisation they were working for just a month earlier with not just the salary they always had but also the pension. ANDREW MARR: Can I end by just asking you about the economy generally because the OECD has been pretty grim about Britain's current position and you referred to that earlier on. But when you look at the service sector, things seem to be picking up. When you look at the housing market, things don't seem to be so bad. Where do you think we really are? We're not in the doldrums anymore, are we? GEORGE OSBORNE: Well I hope we come out of recession this year, and it would be pretty extraordinary if we didn't because we've had an incredibly deep recession, it's been going since last April. France, Germany and Japan are coming out; there's lots of signs that America is coming out. So if we're not out of recession by the end of this year, that would be an absolute disaster for our economy. But if it is pretty striking that much of the rest of the world has now left recession. We haven't and so Gordon Brown's claim that Britain was better placed is one of those absolute pieces of nonsense, just like his claim to have abolished boom and bust. ANDREW MARR: Finally, you'll have been reading (like we all have) all the new stuff about Megrahi and Libya in the papers this morning. What, in your view, now needs to happen? GEORGE OSBORNE: Well when Gordon Brown said there was no double dealing, no deals for oil, I don't think he was being straight with people and we need an inquiry now so that we get to the truth and we don't have more and more revelations coming out of the woodwork, more and more statements by ministers contradicted the next day as the paperwork is produced. ANDREW MARR: George Osborne, thank you very much indeed. INTERVIEW ENDS
Please note "The Andrew Marr Show" must be credited if any part of this transcript is used.
NB: This transcript was typed from a recording and not copied from an original script. Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, the BBC cannot vouch for its accuracy
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