Bruce, Kennedy, Hames, Swinson and Williams R quiz Osborne on the Global Economy

• [Aug 11] Malcolm Bruce (Gordon, Liberal Democrat): AS the wolves circle country after country, is this coalition Government not vindicated? They were absolutely right to come together with a robust strategy to bring our public finances into balance over the lifetime of this Parliament, while the Labour party lacks credibility. If there is one area where we can ensure that that is done in a fair and equal way which puts the lower and middle-income groups in the driving seat of recovery, it is the accelerated process of increasing the tax threshold, and reducing taxes on those people is the best way to do that.

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George Osborne : The right hon. Gentleman is absolutely right that we are taking more than 1 million low-paid people out of tax altogether, implementing the policy that the Liberal Democrats put forward at the general election. I also agree that what he describes is a vindication not just of the economic decisions we took, but of the political decisions we took.

Let us reflect on the fact that a year ago we had a hung Parliament-the first time since the 1970s-and we formed a coalition Government. That was a difficult decision for both political parties involved, but given the political weakness in some other countries, which is driving a lot of the market concern about those countries, the political strength of the Government in Britain is a tribute to both those political parties, which set aside their political differences and came together in the national interest.

• . . Charles Kennedy (Ross, Skye and Lochaber, Liberal Democrat): Given that we are all still hearing that the banks are not making sufficient funds available to small and medium private enterprises in our constituencies and that that is the fulcrum on which the Government's strategy has been based to make up the deficit from the loss of jobs in the public sector as a result of the strategy being pursued, and that we now have a downward estimate for growth, what did the Business Secretary mean when he said that we would have to find more imaginative ways of getting the money through? What did he mean by that and does the Chancellor agree?

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George Osborne : The challenge that we and many developed countries face is that banks are shrinking their balance sheets, because they got too big and they lent too much money. They are also hoarding capital because of the current market turbulence. What we are trying to do as a Government is to ensure that, in that process, lending to small and medium businesses is protected and indeed increased. We signed the Merlin agreement with the banks at the beginning of the year to see an increase of 15% in small business lending. The Bank of England will publish the figures tomorrow, so I cannot give them today, but the banks have already indicated that they are on track to meet that 15% increase in small business lending over this year and I am confident that the figures tomorrow will show that that is the case.

• . . Duncan Hames (Chippenham, Liberal Democrat): Give our country's debts, it is reassuring to learn that the price for Government borrowing has fallen to the lowest levels since the last Liberal Government. How much more expensive would Government borrowing be for taxpayers and public services if our interest rates had gone the same way as those in other parts of Europe?

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George Osborne : It would of course have been ruinous, not just for individuals but for the Government. One of the largest items of Government spending I inherited, unfortunately, was debt interest. We are raising taxes in order to pay our international creditors and that interest is forecast to rise, sadly, over the Parliament, as we reduce the deficit. That is why it is so important to try to get debt falling by the end of the Parliament. Of course, any reduction in our gilts yields is good for the Government and saves us money, too.

• . . Jo Swinson (East Dunbartonshire, Liberal Democrat): I support the Government's plans for cutting the deficit, leading to lower interest rates and increased international confidence in the UK economy, but the Chancellor is well aware that our economy is still fragile, so if tax revenues are higher than expected, or if there are receipts from asset sales, will the Chancellor reinvest that in capital infrastructure projects and skills development, to give a boost to our economy and create jobs, rather than being seduced by the voodoo economics of giving tax cuts to the rich?

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George Osborne : There are quite a lot of American references in this debate. We have used the receipts of some of the asset sales that we have proposed-and indeed undertaken-to invest in new infrastructure, or in a particular industry. Of course, we have to do that on a case-by-case basis, but the spending review set out how we were going to use the proceeds of some of the asset sales for future investment.

• . . Roger Williams (Brecon and Radnorshire, Liberal Democrat): Recent reports have shown that the rural economy has the capacity to grow quickly if it has the right conditions. Will the Chancellor confirm in his autumn update on the plan for growth that those conditions will be met so that the rural economy can play its part in improving the national finances?

George Osborne : We recognise the specific needs of the rural economy. Meeting them is one of the specific work strands in the second phase of the growth review. I know something of the hon. Gentleman's constituency. One of the absolute keys to rural economic development is getting the infrastructure right, especially rural broadband, which will open up all sorts of business opportunities in what would previously have been regarded as quite remote places. That is why we are right to be investing in rural broadband in Wales and across the UK.

Several hon. Members: rose -

John Bercow (Speaker): Order. I thank the Chancellor of the Exchequer and the 52 Back Benchers who have questioned him.

• Full Debate in Parliament