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DERMOT MURNAGHAN: Now David Cameron will be busy writing his long awaited Europe speech this week we suppose, so what do the Liberal Democrats want to hear from the Prime Minister? In a moment I’ll be speaking to the Chief Secretary to the Treasury, Danny Alexander, about that and other issues. Let’s say a very good morning to the Chief Secretary to the Treasury, good morning Mr Alexander. Tell me first of all about this long awaited Europe speech from Mr Cameron, is it a speech that Liberal Democrats don’t really want him to make at all in that it may well rock the boat within the coalition and indeed with our European partners?

DANNY ALEXANDER: The Prime Minister is completely entitled to make a speech on Europe and we have got some very important things as a government that we are trying to achieve in Europe not least of which is working with our European partners to strengthen the single market, to increase opportunities for British business and British jobs, to maintain our national security in Europe not least through the discussions we’re having about the future of police co-operation and justice and home affairs co-operation in Europe. There’s a lot that Britain can achieve and a lot of benefit to Britain from being part of the European Union…

DM: Yes, but that’s all going the other way to what we suppose the Prime Minister is going to be saying, he’s going to be talking about loosening the ties and repatriating powers and then having a referendum.

DA: Well let’s wait and see what the Prime Minister has to say. I believe that British prosperity, British jobs, our nation’s security is fundamentally linked to our position as a leading member of the European Union. It’s not just me that thinks that, other European countries think that. We saw earlier this week that the United States of America feels very strongly that Britain’s links with the United States are dependent on us being, and continuing to be, a leading player in the European Union.

DM: So you think the United States agree with warnings from German politicians and indeed others within the EU that we engage on a renegotiation with a degree of danger?

DA: I do think that Britain is a leading member of the European Union, that we should continue to be a leading member of the European Union, that’s what we said actually in our mid-term review published last week, it was a very clear statement from the coalition government of how we see Britain’s place in Europe and I think there are really big and important issues in Europe that as a country we have to be advancing. That’s what we need to be focusing our efforts on and of course there are difficulties on Europe and different political parties but in the end it is our national interest, our national interest in terms of our economy and jobs and security that has to come first in any approach.

DM: But it is part of your approach, isn’t it, as a Liberal Democrat, it’s one of the real areas where people can grasp on to and say the Lib Dems of all the parties in this country are really, really pro-European. My goodness me, some of you still think we might join the euro at some stage don’t you?

DA: Well we’ve said in the past that we think Britain should join the euro when the economic conditions are right. I have to say I think that I can’t see Britain joining the euro in the foreseeable future, not for many years, if ever. I think the important thing, given all the turbulence that’s going on in the eurozone, is that we work with our European partners to help them sort out the problems in the eurozone, offer advice and support where we can on that but also ensure that as that deepening is going on within the eurozone that we’re maintaining and fighting for those bits of European engagement that are really in our national interest. You know, it was Margaret Thatcher who led the foundation of the European single market which is so important to British businesses and British jobs, that’s why we’ve seen I think a lot of British business leaders over the last few days coming out very strongly and saying they want to see Britain’s place in the EU maintained and I think that’s the right approach.

DM: Well I wanted to ask you about that, not just as a Liberal Democrat but given the job you have and what business leaders and others are saying about the degree of uncertainty that may last for many, many years, if Mr Cameron moves towards a referendum. Inward investment may well suffer because businesses want certainty, they want to know that Britain is going to remain firmly within the European Union if they are going to place their business interests here don’t they?

DA: Well look, there are many reasons why Britain is an attractive place to invest. As a country we are sorting out our economic problems, we’re reforming our economy, we’re dealing with the burden of regulation, we’re putting in place tax policies to attract investment into the UK but it’s clear that for many sectors, for many investors, our place in the European single market, our participation as a leading member of the European Union, is part of that mix. I just think that any responsible British politician should not be contemplating a British exit from the EU given how serious the consequences would be.

DM: On that, what you’ve just said puts you closely, I just listened to Ed Miliband talking on the Marr show, you’re closer to Labour on this issue. Mr Miliband saying we could sleepwalk into leaving the European Union.

DA: Well I agree with a whole range of British politicians, in the Conservative party David Cameron has been very clear he does not want Britain to leave the European Union, as has Ed Miliband, as had Nick Clegg but of course there are forces who want to take Britain out of Europe. That would be completely the wrong thing for us, the idea that somehow splendid isolation that doesn’t just cut us off from Europe but also weakens our links with the Americans too, the idea that that sort of isolation is going to be in Britain’s national interest is just mad.

DM: Now let me ask you more about what Mr Miliband has been saying and your two parties of course share other things, namely a belief in fairness within the tax system, fairness within the economy. Mr Miliband talking about this cut in the top rate of taxation, why on earth would Liberal Democrats be going forward supporting that and also this discussion that’s taking place within the coalition about perhaps taxing benefits for better off pensioners.

DA: Well I want a strong economy in a fair society because I want everyone in this country to have the best chance to get on in life and what I heard from Ed Miliband this morning was that Labour still has not faced up to the fact that it made a catastrophic mess of the British economy during its 13 years in office. They say they’re One Nation Labour, they have got no policies, they’ve got no plan and therefore they’ve got no economic credibility whatsoever. Until the Labour party start being able to say to the people of this country we admit that we made a mess, a monumental mess, of the British economy and we start being honest with people about the fact that any choice has to be backed up by spending cuts or by tax rises, because in the current world that we live in – and it will be like this for a few years to come – there is no such thing as being able to promise, as he appeared to, spending increases, tax rises, last week rejecting some difficult choices, some tough choices that as a coalition we’ve made on benefits but not saying at all what other things he would cut to deal with those things. The Labour party will have no credibility on the economy whatsoever and I think most British people recognise that.

DM: But why does it invalidate, on a narrow point, the fact that Labour are, as you say, still in denial and your leader has said it is about some of the things it did while it was in office and they say there was an economic tsunami hitting this country and measures had to be taken and there’s the scale of that deficit for you but why, whatever they say about that, why does it invalidate their point for instance about the highest rate of taxation? It does seem perverse when you are talking about everyone being in it together, to give people who earn over a million pounds a year hundreds of thousands of pounds back, tens of thousands of pounds back in tax in their pay packet.

DA: Well I think it’s a bit rich coming from a Labour party that had a lower top rate of tax in every one of the 13 years it was in office than this coalition government will have throughout our five years in office. I think it’s a bit rich coming from a Labour party that put in place a tax system where the person who was …

DM: But just why do it, where’s the fairness principle?

DA: Well let me just finish the point, a Labour party that said it was right to have a lower rate of Capital Gains tax so that a private equity fund manager paid less tax on his gains than the person who cleaned their office paid on their income. That was a totally unfair system. In every year of this parliament, the wealthiest in society will be paying more in tax than any year while Labour was in office. In the end what we have to do is get the tax system right to make sure we are raising the most we can from the wealthiest in society, as I say the wealthiest are paying more every year than they did in any year under Labour but look, as a Liberal Democrat the tax policy I’m most proud of is the tax policy we promoted in our manifesto to lift the income tax threshold, to cut the burden of income tax of people on low and middle incomes. From this April every working person paying tax at the basic rate will have £50 a month more in their pay packet thanks to the work of the Liberal Democrats in this coalition government.

DM: Of course we wouldn’t be having this discussion about the pain that everyone is bearing if the economy was growing and growing at a decent rate. In actual fact it looks like 2013 will be as difficult, if not more difficult, as 2012 and 2011. What’s your view from the Treasury, is there likely to be a triple dip recession?

DA: Well look, 2013 is clearly going to be a difficult year. We don’t as Ministers make economic forecasts any more, we’ve set up an independent organisation to do that for us. They forecast that the final quarter of last year, they forecast a small negative and then growth slowly recovering during the course of 2013 and I’m willing to stand by that forecast, it’s the official independent economic forecast but as a government we are doing everything we can in difficult circumstances while clearing up the mess in our public finances and facing big headwinds from the eurozone and from other parts of the world too to support British business, to create jobs. We’ve got the deficit down by a quarter, over a million jobs have been created in the private sector over the last two and a half years but of course there is a lot more that can be done.

DM: I know about the forecast, I know the point you’re making but you’d be asleep at the wheel, wouldn’t you, if you weren’t looking at what has gone before and we saw that huge dip in the service sector coming in from the last quarter of last year. We’ve seen things like the Jessops chain closing this year, job losses at Honda and there are real fears of a triple dip recession. You must be aware of those?

DA: Those job losses are very disappointing obviously and we’ve been working with those companies, especially with Honda actually where we provided some support for additional investments in the past, the automotive sector overall is doing better than it has done for very many years but clearly, as Honda themselves said, there are problems with demand in the European market. For example this year we’re going to see the guarantee systems that were put in place for new infrastructure projects, for new housing projects, coming through the system, the Funding for Lending scheme that we’re doing jointly with the Bank of England, benefiting British businesses and British mortgage borrowers.

DM: Do you think this will help, all this will help avoid a triple dip recession?

DA: I think all these things will help to support the economy, to ensure that as we continue to take the tough decisions that we need to take to repair the mess that Ed Miliband and his colleagues left, that we’re also building a stronger economy for the future. That’s got to be the right objective.

DM: Can I just ask you a specific question, of course it has a big bearing on the economy, this issue of childcare, how expensive it is in this country and how particularly working couples say quite often it’s not worth one of us going out to work, the amount of money we have to pay for childcare. It has been discussed about some kind of benefit for parents with under-5s, now it appears that you are going to roll back on that. What exactly is happening?

DA: Well, this is a hugely important issue and it’s one that the coalition government will be addressing. We said so in our mid-term review, there are a whole range of new policies that we’re announcing over the next few weeks, tomorrow we’re setting out the details of our single-tier pension which is about dealing with some of the big problems in our pension system, ensuring that everyone has a decent pension at retirement. Over the next few weeks we’ll be setting out details of plans to increase support for childcare because, precisely as you say, there are an awful lot of people who are in work and then look at the costs of childcare, especially in those first couple of years before the free offer of nursery education kicks in. It’s those sorts of gaps if you like where people are faced with crippling costs, where the incentives to work are dramatically reduced. We want to ensure that the maximum number of people go out to work.

DM: Universal tax breaks then say for people with under-5s?

DA: Well the government will set out, we will set out over the next few weeks the details of our policies. I am not going to announce that on this programme but what I will say to you is that what we said in the mid-term review last week, that we’re going to set out a new system of support for childcare to ensure that people that want to go back to work have support to do so, it is something that we will be doing over the next few weeks. I think it’s a good use of resource, I think it will be a good use of a little bit more public money, to help make sure that we really can ensure that those people go back into work.

DM: Okay, Chief Secretary, thank you very much indeed, very good to see you. Danny Alexander there.