LONDON (Reuters) - Britain’s finance minister vowed to stick to the path of austerity, saying economic recovery on its own would not be enough to fix the budget deficit and the causes of over-spending still needed to be addressed.
George Osborne, speaking at a Thomson Reuters Newsmaker event on Tuesday, also said he was “a couple of weeks” away from deciding whether to split up state-owned Royal Bank of Scotland and rejected criticism that the government sold Royal Mail too cheaply.
Osborne claimed some credit for Britain’s long-awaited economic recovery, saying it was being helped by his refusal to budge from his austerity plan despite widespread criticism, including from the International Monetary Fund.
“I think we already see the benefits in the UK of having a clear economic plan and sticking to that economic plan,” he said.
Figures released earlier on Tuesday showed Britain’s public finances improved in September, helped by higher tax revenues. And on Friday more data is expected to show Britain’s economic growth reached its fastest pace in three years between July and September.
Osborne warned that growth alone would not fix the fundamental problems in Britain’s public finances and the government would have to take “very difficult decisions”.
“An improving economic situation in the UK does not automatically lead to a windfall for the public finances because we shouldn’t assume that a structural deficit is solved by an improvement in GDP,” Osborne said.
“It’s called a structural deficit for a reason,” he said.
Osborne said earlier this month that if re-elected in 2015, a Conservative government would aim to wipe out Britain’s budget deficit altogether by 2020 and use a surplus to pay down the national debt.
Osborne said he would decide within the “next couple of weeks” whether to split up state-owned Royal Bank of Scotland (RBS.L), so that at least part of the bank could be returned to the private sector.
RBS was taken into public ownership at the height of the financial crisis in 2008, and the government is now reviewing whether to hive off potentially toxic assets into a ‘bad’ bank that would remain in public hands, so that the rest of the bank can operate with a clean sheet.
“If you look at Lloyds, you can see that if you get the strategy right, and you instill some market confidence, and the government can start to exit from the banks, there is an encouraging path there for RBS,” he said.
A 6 percent chunk of Lloyds Banking Group (LLOY.L) was sold to institutional investors in September, and earlier this month a majority stake in postal operator Royal Mail (RMG.L) was sold to the public and financial institutions.
Shares in Royal Mail soared nearly 40 percent above the sale price on its first day of trading.
Osborne rejected criticism that it had been sold off too cheaply, saying initial public offerings were usually discounted and that the government had received professional advice from banks as to the correct price.
“On all fronts it has been a great success,” he said.
Osborne was making his first public appearance since travelling to Washington for annual meetings of the IMF and then on to China where he lead a trade and investment mission.
He said his U.S. counterpart Jack Lew and top Republicans in Congress, John Boehner and Paul Ryan, had all stressed they understood the “very, very serious consequences” of any default of U.S. debt, something averted for now by last week’s deal to raise the U.S. debt ceiling.
Osborne, asked about talks for a possible U.S.-European Union free trade agreement, said he hoped financial services would not be excluded.
France has so far blocked the inclusion in the talks of the audiovisual sector - which includes its cinema industry. The United States wants to carve out financial services, something that would frustrate the City of London financial hub.
On China, Osborne stressed the importance of making London the world’s second-biggest offshore hub for trading in China’s renminbi currency after Hong Kong, something he sought to encourage with a deal last week which will make it easier for banks from China, and other countries, to set up in Britain.
Osborne stressed there had would no special treatment for Chinese banks.
“(Chinese banks in Britain) will be well-regulated ... there has been some comment that this was a special deal for the Chinese. This is a deal available to other banks provided they meet the criteria.”
Writing by William Schomberg; editing by Patrick Graham and Giles Elgood