Pre-Budget Report

I disagree with the hon. Gentleman. We have set out a plan to reduce the country's deficit over a four-year period, and I believe that that will be done in a sensible way that will not damage public services or the fabric of the economy. Yes, the settlement will be tighter and it will be difficult, but I am surprised that the hon. Gentleman did not set out some of his proposals in relation to universities, for example. I think that choices will have to be made, but I believe that people will recognise that, with public spending having grown over the last 10 years, we can proceed with a much tighter settlement than we have had in the past. However, as I said earlier, I believe that we can protect front-line services at the same time. I listened to what the hon. Gentleman had to say about tax. He did not say what he would do, but that is one of the luxuries of being on his Benches. I think that using national insurance is a fair approach, and I said I would take steps to make sure that people earning under £20,000 would not be affected. The hon. Gentleman asked about growth. I have set out my forecasts, which are not dissimilar to those of the Bank of England. Indeed, I remember that after the last Budget he and many others criticised my forecast that the economy would grow by between 1 and 1.5 per cent. next year, whereas the consensus among most commentators now is that that is broadly right. The hon. Gentleman asked about the financial services industry. Yes, it has been a major part of our economy. I am not sure where he stands on these things nowadays, but I believe that it will remain an important part of the economy. It employs 1 million people in this country and, properly supervised and regulated, it is important. However, I think—and I think the hon. Gentleman thinks so too—that people responsible for banks should bear it in mind that they have had a lot of public support, directly or indirectly, and that their priority should be to rebuild the banks' capital. He asked how the system would work. He seemed to hint that he would have imposed a windfall tax on the banks. I think that would be a mistake, because it would amount to telling the banks to build up their capital position while at one and the same time taking the money away from them. Some of the banks that might be affected by such an approach are those that, arguably, did a little bit less to contribute to some of the problems in the first place. The way that the system will work is quite simple—there will be a levy of 50 per cent. on bonuses of more than £25,000, and there will be anti-avoidance measures. The hon. Gentleman asked what will happen if people get the money paid in income, and the answer is relatively simple—they will pay income tax on it. That is how the system operates and, unless he is saying that there should be an incomes policy for all bankers, which would be difficult to operate, I disagree with him. The hon. Gentleman said that I was searching for tactical dividing lines; I have rarely been accused of doing that. I think that the divisions between us and the Conservatives, and between us and the Liberal party, are perfectly there to be seen. We do not have to go looking for them.