ANY QUOTES MUST BE ATTRIBUTED TO JEFF RANDALL LIVE, SKY NEWS

JEFF RANDALL: George Osborne arrived at the Conservative party conference in Manchester with a bit of a spring in his step. After a series of positive numbers the Chancellor was able to tell delegates that although the economy is far from fully recovered, Britain is making progress. In his speech yesterday Mr Osborne promised a freeze on fuel duty, further cuts to welfare payments and – get this – a government budget surplus by 2020. Today the Prime Minister echoed that thought saying that the credit crunch had brought Britain to the brink and it would be irresponsible not to put money aside in the future for a rainy day. Well joining me now from Manchester is the Chancellor, George Osborne. Chancellor, many thanks for your time, nice to see you. Could we start with today’s news, the US government is undergoing a shutdown, how serious could this become and what is the potential impact on Britain?

GEORGE OSBORNE: Well it does have the potential to become quite serious, not only for the US economy but the world economy and it could have significant impact on US GDP if the two sides in this argument aren’t able to resolve their differences so of course that’s up to domestic US politicians to fix it but I think it’s just a reminder to everyone in this country that the problems of the debt crisis, the problems in the global economy are not resolved and that we in Britain have absolutely got to stick to our course of sorting out our own problems.

JEFF RANDALL: In extremis, if this is not sorted out and of course there is a looming argument over the US debt ceiling, it seems to me that the US could default and that could push up borrowing costs for everybody.

GEORGE OSBORNE: Well obviously that would be a very serious turn of events. I think what you also have the potential of is an impact on US GDP in this quarter which of course we wouldn’t want to see because the US economy is such an important part of the global economy. As I say, the two sides in this argument can hopefully resolve their differences but it is I hope a contrast to the fact that in Britain we have a government that is able to get ahead with its public finance policy and deliver that and as a result deliver economic stability here at home.

JEFF RANDALL: You say that Chancellor but of course our debt here continues to rocket upwards, you’ll be borrowing £100 billion this year, a similar figure next year and yet you talk of delivering a budget surplus in the next parliament. I mean to many that seems like wishful thinking masquerading as fiscal policy.

GEORGE OSBORNE: Well I think it is very important that we learn the lessons of what went wrong in this country and one of the things that went wrong is that in the good years, if you like, the boom years of the last decade we were running budget deficits year in and year out. Now other countries weren’t doing that and as a result, as we went into the financial crisis in 2008, I think we had the largest budget deficit in the G7 according to the IMF. Now I’m saying let’s learn the lesson of that, provided the recovery is sustained and if the economy is growing then we should be seeking to put aside money in the good years to protect against rainy days ahead because I’m not one of those Chancellors who is so foolish as to believe they’ve abolished the boom and bust cycle and I think that is something we can achieve in the next parliament but of course what it requires is for us to stick with the current deficit reduction plan and then when that is complete, to exercise tight discipline over public expenditure going forward.

JEFF RANDALL: Chancellor, I’m not doubting the desirability of a surplus, I’m just questioning your ability to get there. Let me just run some numbers past you, currently you’re spending about £720 billion a year, of that social security benefits are by far the biggest element. Now if you look at the OBR forecast for social security benefits and you add in tax credits and other forms of welfare, what you discover is that these benefits are going to be rising every year all the way up to 2017/18. You cannot deliver a surplus against that backdrop, the maths don’t work.

GEORGE OSBORNE: Well I think, look, for a start there are going to be difficult decisions ahead on welfare as there have been difficult decisions in this parliament on welfare, that’s I think clearly the case but I would make this broader argument about welfare spending since you bring it up – if you divide welfare spending into two parts, one is pensions basically and the other is working age welfare, pensions actually we are holding flat in terms of its percentage of GDP, partly because we’ve taken difficult decisions on the pension age and then working age welfare is actually falling as a percentage of GDP over that period from just shy of 8% of GDP to just above 6% of GDP so I think we’ve demonstrated we can get a grip on welfare costs and one of the new instruments that I’m bringing to bear in all of this is a welfare cap so that the Treasury and government and Parliament will be able to control working age welfare costs because that’s a very important part of not only delivering healthy public finances but also making sure we’re spending money on the things we really need to spend money on as a country like infrastructure.

JEFF RANDALL: Explain to me this, why is it when employment is rising, unemployment is falling, the economy is growing, why does the OBR forecast rising social security costs? People would expect quite the reverse, they would expect them to fall as the economy improves.

GEORGE OSBORNE: As I say, they are falling as a percentage of national income and that’s …

JEFF RANDALL: But in cash terms, in cash terms they’re rising.

GEORGE OSBORNE: Well they are falling as a share of the national economy which is the way … we calculate the deficit as a share of the national economy, that’s how it is commonly presented and if we hadn’t taken the difficult decisions we’ve taken to cap benefits, to make all sorts of reforms to other benefits, then you would have found a situation where not only was a very big cash increase but it would have been increasing as a share of national income so the measure I think that is sensible, the best measure to look at is as a share of national income and I think it’s gone from around 7.8% of national income and it is forecast to go to 6.2% of national income but I’m the first to say there may be, probably will be, difficult decisions we are going to have to take in the future on welfare as well but we’re going to have the new instrument of a welfare cap to help us do that.

JEFF RANDALL: Chancellor, you’ve said many times you want to support people who do the right thing. I put it to you that people who save in a private pension scheme are doing the right thing yet you keep attacking them through eroding their tax incentives. Why do you do that and have you finished?

GEORGE OSBORNE: Well, I’m not sure I accept the premise of your question. We have taken …

JEFF RANDALL: You have attacked their tax incentives.

GEORGE OSBORNE: We have taken some decisions on the annual allowance and the lifetime allowance on pensions, now this has affected only the top 2% of pensions in the pension funds, pension pots in the country, so it is a very small number and I was pretty explicit that that was one way in which we could make sure that dealing with the deficit was an effort that was fairly shared across all the incomes of society and that the very best off in our society made a proper contribution to that but the vast bulk of pensions savings, the vast bulk of pension pots not only have I not tackled or done anything with the tax treatment of those, actually what I would say is point two auto enrolment, we are helping get people get more savings and that’s a scheme that people wondered whether it was going to be a success, it’s up and running and successful. Things like ISA limits I have also been able to increase so I think across the piece we’ve done some good things for savers and people with pension funds, pension pots but if you are saying that the very biggest pension pots have had to pay a bit more tax, you are right about that.

JEFF RANDALL: What about another group of people who are doing the right thing? The minimum wage has been steadily eroded in recent years by inflation, these are workers doing the right thing, unfortunately they are at the wrong end of the income ladder. Why haven’t you protected them?

GEORGE OSBORNE: Well first of all the minimum wage has actually gone up this week …

JEFF RANDALL: Yes, by 12 pence.

GEORGE OSBORNE: Pardon?

JEFF RANDALL: 12 pence an hour.

GEORGE OSBORNE: The minimum wage is set by the Low Pay Commission, that’s an independent body, independent of government, it has got labour market economists on it, people from business and indeed representatives of the trade unions on it and I think they’re a very good body at looking at labour market conditions, making an assessment of what the market can support and I think that’s been a well-established mechanism. Now actually we are asking the Low Pay Commission to look at the minimum wage rate and that’s something they’ve been asked to do but I would make this broader point that there are other ways to help low income people and for example, the increase in the tax free allowance, the personal allowance that I’ve brought in in a succession of budgets is equivalent to an almost 10% increase in the national minimum wage so there are other ways of delivering real help to people on lower incomes.

JEFF RANDALL: Chancellor, if you wanted to you could force through legislation which would change the minimum wage, you don’t have to rely on an independent commission. This is the point I’m putting to you, under your government very high earners have had huge tax decreases and at the other end they are getting an extra 12 pence an hour, that looks extremely unfair.

GEORGE OSBORNE: Well I don’t at all accept the premise of your question because in dealing with the …

JEFF RANDALL: How am I wrong, what is wrong about my question?

GEORGE OSBORNE: Because in dealing with this very large deficit we have asked the very best off in our society to make a contribution to that which is greater than the contribution of others in society, not only in cash terms but as a proportion of their income. I have had to take difficult decisions for example on increasing stamp duty, capital gains tax and the like and a body like the Institute for Fiscal Studies, which you will know well and probably have on this show quite often, have pointed out that the richest 10% in this society have made a greater contribution to dealing with the deficit than any other group in the population but where we’ve been able to help we’ve sought to target that help through the personal allowance, through freezing fuel duty, through freezing council tax and the like to people on lower incomes and as a result our tax system has become more progressive and indeed we’ve just produced figures for people which show that the richest are now paying the highest proportion of income tax revenues in any of the last fifteen years and we’ve done this in a way, by the way, which still enables us to cut the top rate of tax because that was a disincentive to enterprise. So I think we have created an entrepreneurial tax system while making sure that the best off make their contribution and that is in the best traditions of Conservatism.

JEFF RANDALL: Chancellor, on a busy day for you, many thanks for joining us, we appreciate your time.

GEORGE OSBORNE: Thank you very much.