Asset sell-off could pay for lower taxes

GEORGE Osborne yesterday revealed he could have tens of billions of pounds to spend on tax cuts or spending projects before the next election.

The chancellor has not factored the proceeds from selling off state-owned assets – including the government’s stake in RBS and Lloyds – into his deficit reduction plan.

If the government can sell its banking shares at a profit, by no means a foregone conclusion, it could approach the next election with a war chest to spend on vote-winning goodies or tax cuts.

Senior Liberal Democrats have urged the chancellor to use any proceeds to scale back his austerity measures.

But yesterday he told the Treasury select committee that he would not necessarily use the funds to help reduce the deficit.

He said: “I’m not wedded to all proceeds from asset sales or privatisation going into deficit reduction,” he said, although he added he hadn’t “hypothecated particular projects or particular sums”.

As well as reprivatising its stakes in Lloyds and RBS, the government is also planning to sell off the horse racing Tote, the Student Loan Company and Royal Mail.

Andrew Tyrie, chairman of the Treasury select committee, said the proceeds would run into the “tens of billions” – even without accounting for the bank sales.

However, it is still unclear whether the government can make a significant profit on its banking shares in the near future. It is currently sitting on paper losses of around £2bn in Lloyds and £8bn in RBS.

Those losses could be even greater if the government decides to break up Lloyds to boost competition in the retail banking sector, one of the options being considered by the independent banking commission.

GEORGE OSBORNE AT THE
TREASURY SELECT COMMITTEE
On suggestions that Mervyn King, the independent governor of the Bank of England, has become involved in party politics:
“He speaks his mind. He's independent minded. I don't believe he has been drawn into matters political.”

On suggestions that King, along with senior civil servants, helped unseat Gordon Brown as Prime Minister by backing Tory deficit reduction plans:
“The governor of the Bank was making both public and private statements earlier this year... that he was concerned about the lack of what he believed was a credible fiscal pan. He wasn't telling me anything in private that he wasn't also telling me in public.”

On whether Britain will help bail out troubled countries in the Eurozone, after it offered a bi-lateral loan to Ireland:
The loan was a “very specific resource for assisting Ireland and the legislation is for Ireland only”. He gave “as clear a hint as is possible” that similar assistance would not be afforded to Portugal, Spain, or Italy. “There was an option available to create a general enabling power to make loans [to other countries]. I have decided not to do that.”

On the UK economy:
There is “no silver bullet” but “there are some signs of evidence that conditions are beginning to ease a little”.