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

Following are excerpts from the transcript of a CNBC interview with Julia Chatterley and George Osborne, Chancellor of the Exchequer.

JC: A warm welcome back to the World Economic Forum here in Davos. I'm very excited to say I'm joined by the UK Chancellor, George Osborne. Now, Chancellor, thank you so much for joining us. David Cameron, in the last hour or so, said that if Europe's about ever deepening political union then it's not the organisation for us. Would you agree that the back and forth, and the discussion over this EU referendum, is harming the UK economy?

GO: Well, I don't think it's harming the UK economy, because the most recent numbers this week show we're creating jobs and employment's at a record high and we're getting a lot of investment. Do I think getting this relationship right for Britain, with the European Union, is important to our economic future? Yes I do, and what the Prime Minister was saying, and what we're saying as a government, is let's reform that relationship, let's allow the Eurozone to pursue, if they want, that ever greater political union. Britain doesn't want to be part of it, but within a reformed EU and with proper protections for countries like Britain that aren't in the Euro, we can have that European Union.

JC: So you disagree, actually, that for corporates in the UK they're concerned about investment going forward, given there's still an uncertainty over which way this is going, particularly given the polls?

GO: Well, as I say, the evidence at the moment is the investment is flowing into the United Kingdom from around the world-,

JC: I'm talking about corporates in the UK investing their-,

GO: Well actually, again, business investment is up in the UK, but what I would say is this, is this important to the UK's long term economic future? Yes it is. We've got to get this question right, we've got to get the reforms right, you know, our argument is reform the European Union, make sure that Britain is more comfortable inside the European Union by protecting, as I say, countries without the Euro, making sure we're not we're not part of ever-closer union, making sure we don't have welfare tourism, achieve those sorts of things and make Europe itself more competitive, and then it will be actually a big boost to investment, and that's exactly what the negotiation is all about at the moment.

JC: We've seen a number of analysts downgrading their estimates for growth in the back end of last year, towards the, sort of, first half of this year. In particular we see pressure on sterling, we've got the market now pushing rate hikes out for the UK economy until 2017. What's creating that uncertainty if it's not concern about the UK economy, if it's not the referendum? Do you put it all down to external factors?

GO: Well, the IMF had their latest forecast this week, and they did downgrade the world economy, but they didn't downgrade the UK, and they kept the UK forecasts where they are, and along with the United States, we're set to be one of the fastest growing of the advanced economies, but clearly we're a big, open trading nation, we're probably the most open of all of the big G7 economies, and so you do look with some concern at what's going on in global markets, and it does present something of a dangerous cocktail out there. I think there are answers, I mean, first of all, in countries like the United Kingdom, we've got to go on making the reforms we're making, sort out our public finances, make ourselves more competitive, invest in the long term infrastructure of the country and the like, and then I think internationally we need a bit of a sense of perspective which is, you know, underlying all this volatility are some transformations and transitions which are fundamentally good for the world. China becoming a more consumption-based economy. Energy being cheaper with new supplies, whether it's Iran or shale oil. In the European Union and in the Eurozone, we hear today, you know, the European Central Bank ready to do as central banks in Britain and America have done when economies are weak, and step in and support the Eurozone. So you know, I think it's quite important behind the volatility to look at what's driving some of this volatility, and they're fundamentally quite positive trends.

JC: So investors are just getting it wrong here?

GO: No, I think, look, because of the very sharp falls in the oil price, the markets are unstable. Obviously falling oil prices affect different countries and different companies in different ways, but fundamentally again for most western economies, and for most emerging economies, not all, a fall in the price of energy is a good thing, so you know, I think that's, you know, this is of course an anxious time for investors, people see the stock markets moving around. I think the job of policy makers is to keep their eye on the ball, and their eye on, you know, what are the long term plans we need to implement, and that's the way you can give confidence in periods of very short term volatility.

JC: Do you think that US politics plays into this, to some degree, as well? I think for the global economy that the big concern here is that the UK economy is slowing, and then they look to the leadership in the US and they see actually in a few months' time we could have Donald Trump as Republican candidate, and if not the President of the United States. Given the comments that he's made, actually it's incredibly concerning. Are you concerned about the prospect of Donald Trump in power in the US?

GO: Well, thankfully I'm only responsible for my own democratic system-,

JC: They're a trade partner. They're a trade partner.

GO: Rather than taking on responsibility for the United States, and no, you know, US voters will make their own decisions, I mean, of course one of the challenges for the United States has long been the case that the most powerful and effective arm of government has been the Federal Reserve because of the gridlock in the congress and the administration, and I think, you know, whoever is the President, whoever is in charge of the congress in a year's time, what you want to see is more effective coordination between the two, so you know, without picking runners and riders in the Presidential election, although, you know, some are even better candidates than others, if I can put it like that-,

JC: Nicely done.

GO: Then, you know, then that's what the rest of us want to see, and you know, the United States is out there concluding trade deals in the Pacific, looking to conclude a trade deal across the Atlantic, those are big positive signs for us.

JC: I'm going to throw Germany into the equation now, the German Finance Minister suggested in order to help finance the refugee crisis we could look at an EU-wide tax increase on fuel. How do you feel about that prospect, and do you think he's trying to hand the referendum to the vote leave campaign?

GO: What he's suggesting is that in Germany that might be an answer. I would say in the United Kingdom, actually we meet our international aid obligation. We're one of the-, in fact, we're the only large economy in the world that contributes 0.7% of our national income towards international development. So we don't need additional resources for international development, we can deploy those resources that we-, you know, we thought this through in advance, you know, let's have a generous and powerful aid budget, and that is being deployed in and around Syria. So after the United States, Britain is the second largest donor to the refugee communities in Jordan, Lebanon, Turkey, and so on, and for the size of our economy we are the largest donor.

JC: I want to move on to talk about technology here and the UK tech space in particular. There is a huge buzz around the UK tech scene, but why do you think the UK hasn't managed to replicate the success of the likes of Google or Spotify? Why haven't we created our own yet, and what more do we need to do?

GO: Well, Britain, I think, is the go to place for tech in Europe. I mean, there are other good places like Berlin and Stockholm and so on, but I think London, with Tech City, has become a magnet for investment and Britain is the most online of all the western economies in terms of the way we do our shopping and the way we conduct our social lives and the like. So there's a huge amount on offer in the UK. The question why has there not been a big British, or indeed European, tech firm of the scale of Google and Apple and whatever, I mean, it's a good question, although of course there have been leading Brits involved in building those firms, like Sir Jony Ive, and so on, I think it might be something to do with the fact that Europe's not been able to create a digital single market. We're working hard at trying to do that, frankly I think it's all taken far too long, its' far too slow, but if you could create that digital single market, you'd have 500 million-odd customers to sell into, so I think in the United States, the initial home market for some of these tech markets has been, of course, pretty substantial, and look, I don't think it's the only reason, I think the United States has had a more entrepreneurial economy than many European economies. Hopefully that's changing in the UK, and we're starting to make ourselves the go to, most competitive economy of all of the western economies.

JC: I agree with you on an EU scale we need to do more about the digital market, but for the UK specifically-,

GO: Yes.

JC: What more do you think you can do here?

GO: Look, I think there are a couple of things. I mean, first of all, you've got to make sure the kids have the right skills, so you know, hire the right people. As of last year, we are teaching computer coding in schools across the country. You know, not just how to use applications but actually how to code. You know, that's a big step forward, you know. Second thing we're doing is we're supporting individual clusters. London I mentioned, but there are, you know, Edinburgh, Dundee for video games, Leeds is also an emerging tech cluster, and I think government can play a, kind of, directive role in putting the infrastructure in and making sure the broadband's fast enough and so on. We've got generous tax breaks for the guys and girls who are successful at building their businesses in the UK, and then I think a particular UK advantage is potentially FinTech. You know, obviously as the world's largest financial centre, we have a lot of financial expertise, and you know, the companies, not just the big banks, but all of the financial firms in the UK, have that financial expertise. Combine it with tech and you've got FinTech, and I think the most exciting things happening in FinTech in the world are not happening, actually, in California, they're happening in the UK.

JC: Sir, thank you so much. The UK Chancellor, George Osborne. Louisa, on that note, I'll hand back to you.

GO: Thank you.