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CNBC Transcript: Interview with George Osborne, UK Chancellor of the Exchequer

Following are excerpts from the transcript of a CNBC interview by Geoff Cutmore with George Osborne, UK Chancellor of the Exchequer


Q. I wanted to ask you, you've come here to the IMF, the IMF has consistently underestimated UK growth rate. Do you feel you've been able to come here and demonstrate a little bit of British swagger? And maybe offer a few tip on how Europe might get some?

A: Well I think that Britain has shown that if you have a clear economic plan, that you are prepared to take difficult decisions to sort out your public finances or to make your economy more competitive, then you do see the benefits not just in growth of your economy but in jobs created and higher living standards and the UK has now consistently for the last few years been the fastest growing of the major advanced economies of the world. We've got one of the highest participation rate, highest employment rate in our history at the moment and low unemployment. But I don't come feeling job done! I always come to these meetings thinking "god, there is so much more we need to do": to expand our exports, make our productivity better, build more infrastructure, make sure our workforce is better trained. So I come away, more with a sense of lots to do, rather than what's done.


Q. What do you think the IMF misunderstands about the dynamism of the UK economy? Why have they consistently got the growth figures wrong?

A: Well, to be fair, the IMF these days, actually highlights the UK and has done in a number of meetings here in Peru as a bright spot in the world economy and it did focus more in particular on the work we've done in repairing our public finances. I think a couple of years ago, here at the IMF and indeed in those other places there was a debate raging about whether the UK had pursued the right course of action in aggressively seeking to tackle its deficit, which at the time of course when I became a Chancellor it was 11% of the GDP. That argument was had within the IMF as it was more broadly within the economics profession and I would argue that you look at the results and the argument has been pretty conclusively settled in favour of taking the actions necessary to live within your means. But there were allies here in the IMF at the time, even if they didn't always win the day in the institution.


Q. In the report on the global economy, the IMF has singled out China and the Eurozone potentially as sources of risk going forward. From a UK perspective which of those two represents the greatest challenge to growth going forward?

A: Well, I think for the UK in particular, obviously a lot of our exports go towards the Eurozone - 40% of our exports. Now, I would actually like to broaden the base of our exports and connect us better to economies like China, India, Brazil and so on. So for the UK, we are more exposed to Europe, and I would actually like us to be more exposed to the wider world if that makes sense. I think the world as a whole, obviously the Chinese question has loomed large here but actually the message we got from the Chinese representatives at this IMF meeting has been a pretty positive one in other words that they are undertaking these necessary reforms, and I strongly support this progress they're on : they're trying to move China from an investment-led, manufacturing based economy to a consumption led, services based economy , and let's be fair, it took Britain and America many decades to make that transition – China is trying to do this in the space of a few years and instead of coming here and hearing Chinese officials saying "oh it's all sort of difficult now", quite the reverse: the Chinese officials have been stressing how absolutely committed they are to these necessary reforms so actually end the meeting a bit more optimistic than when I started and that doesn't always happens when you come to these things.


Q. Another source of risk, which has got less of attention here, but is critical for the UK, is the Asset Management industry and I wonder if you come away from here thinking maybe it's time for UK root and branch stress testing of the UK's Asset Management sector given that it's such a large part of the UK economy and the global economy.

A: Well the Asset Management industry is a really important industry for getting financing into productive ventures, helping companies to grow and it's also a very important industry in its own right- it employs a lot of people- and I want Britain to be the undisputed home of that industry, the best place in the world to run your Asset Management business. We of course, have to keep an eye on risks across the financial (inaudible) not just in our banks but in our shadow banking system as well, but l'm confident that with Mark Carney in the Bank of England doing their job well at the moment we can do that in a way that doesn't damage that industry but actually strengthen that industry.


Q. So, should you as Chancellor perhaps, I know that Bank of England has a regulatory function here, but perhaps you as a Chancellor who sets the tone, maybe you should just send them little shots of … into the industry and say look if necessary we would think about stress testing in the same way you've done for the banks.

A: Well the Asset Management industry is extremely important for Britain, it's a source of investment into our real economy , it's also a really important industry in its own right , it employs a lot of people in London, Edinburgh and the like, and we want it to grow in Britain so we want this to be the best place in the world to do your asset management and I will take steps to strengthen our appeal, part of that is having of course a good regulatory system that makes sure that it is robust and safe as an industry, that's in everyone interest. But we've given the Bank of England the power to do that, they have micro prudential powers to look across the piece not just at banks but at the shadow banking system but one of the good thing in having a Central Bank Governor like Mark Carney and the arrangements we have with the Bank of England is that I can trust them to get on with their jobs rather than trying to second guess them.


Q: So you're relaxed about it currently? Is that a fair assessment?

A: No I trust the judgement of the Bank of England


Q: Can I ask you, we are obviously spending a lot of time focusing on where the UK sits in its relationship with Europe while we have these threats of slow-down in Europe and these risks around growth and concerns… does that makes it a lot harder to pitch the case to stay inside Europe?

A: Fundamentally, the European Union has got to be a source of jobs and prosperity going forward for it to be an attracive organisation to be part of. That's just not a British problem or issue, that's an issue for all European countries and so quite a lot of change that we want to expand the single market, to conclude free-trade deals with the United States and the likes of China, to make sure that Europe is a source of innovation and high-growth companies, those things would apply whether I was speaking as the British Finance Minister or the German Finance Minister or the Italian Finance minister. So part of what we are thinking to achieve is reform for the sake of Europe as a whole; part of what we are trying to achieve is reform that recognises that Britain is not part of the single-currency, therefore has a different relationship with the European Union compared to many other member states; not all but many others, and seeks a lasting arrangement that is fair both to the Eurozone and allows the Eurozone to be strong but also allows Britain to have a strong place outside of the Eurozone but within the European Union and that is the nub of the reforms we are seeking to achieve.


Q. Coming back to the question, it's pretty hard to sell a story in favour of staying-in when we have sclerotic growth rate in the Eurozone.

A: Well I think the British people need to see that the European Union is going to be a source of future prosperity and party of course they would judge that by what's going on in Europe at the moment and I think it's important if you think of why did certain countries joined the EU, France and Germany were ending a century of bloody conflicts. The countries of Eastern Europe or indeed Greece, Spain or Portugal were escaping tyranny and dictatorship of various forms. Britain joined as an economic prospect in the early 1970's. We actually wanted to modernise our economy we wanted to be part of a single-market and a free-trade area. So for us, the economic benefits of membership to the EU have always been paramount and there are clearly economic benefits to membership but there are also costs so we need to make sure that the costs are diminished and the benefits are accentuated.


Q. Is it damaging business investment into the UK tough? and preventing companies from hiring right now as they wait for a sate to be announced for the referendum. We talk to companies all the time who feel uncertain about what they are investing in when they put their money into Britain right now because there are multi-national or international companies and they want to know where Britain stands .

A: Well I see no evidence of that at the moment, quite the reverse. Britain is attracting a huge amount of the world investment. I mean second only to America and China so we are the third largest source of investment in the entire world which given our size is no mean feat. And even in the European context, if we look at something like Chinese investment into Europe, we are attracting more investment from China than Germany, France and Italy all put together. So there's no evidence at the moment that somehow this referendum is casting a pall over things, quite the reverse: people see Britain at the moment a very good place to do business, a highly-competitive economy and when they look at what we are asking for in its European negotiation I think most businesses will say "yes, absolutely, we support Britain's efforts to make Europe more competitive". So people are voting with their dollars and their renminbi, and their Yen and their Euros and putting their money in Britain .


Q. But aren't you worried that there is a perception heightened perhaps by David Cameron meeting with the chancellor Merkel .That there is a backdoor deal being hatched here, that will ultimately encourage the Germans to campaign in favour of supporting the UK staying in. That there is an element of spin being now introduced to this whole issue of Brexit.

A: I don't think so because in the end, the British people will decide; you know it can't be a back-room deal or some piece of spin as you put it, because ultimately the British public get their say in the Referendum, and it you attempted such a thing, you would be found out. We are looking for substantive changes to our relationship with the European Union, reflect the fact that we are not in the Euro, that reflect our concerns about migration and people coming into our country just to claim our welfare payments… and reflect our concerns about Britain to be tied into an ever closed Union. You know these are substantive real things we want to get changed and I think we'll be successful in that process but ultimately it's not going to be for me to decide or dare I say even for those international investors and foreign countries to decide, it will be for the British people to decide.