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DERMOT MURNAGHAN: Now Labour this weekend has attempted to challenge accusations that Labour is not credible on the economy, the key political battleground of course. The Shadow Chancellor says he now accepts every spending cut that’s been imposed by the coalition and endorsed George Osborne’s public sector pay freeze. Well he said he accepted it but union officials have accused him of betraying Labour supporters. In a moment I’ll be speaking to the Shadow Chief Secretary to the Treasury, Rachel Reeves, who said yesterday that her party wasn’t ready for government but watching the discussion are our Twitter commentators Paul Waugh, editor of Politics Home, joined by deputy political editor of the Telegraph James Kirkup and Craig Woodhouse, political correspondent of London’s Evening Standard newspaper. They provide their reactions via Twitter, you can read on the side panels and you can follow as well on our website, skynews.com/politics and join in using the hashtag #murnaghan. Well let’s say a very good morning to Rachel Reeves. Listening to your leader this morning in terms of what has been said by him and the Shadow Chancellor about cuts and how you now accept them, you accept them but you don’t like them because you’re living in the real world and you’re not going to take power any time soon?

RACHEL REEVES: Well I think there’s two things. First of all, is what the government is doing now and we continue to say that the government is cutting too far and too fast because what they’re doing is choking off the economic recovery which means there are fewer jobs, growth has flatlined and of course government borrowing is now set to be higher and …

DERMOT MURNAGHAN: That’s the analysis but you can’t change it out of power.

RACHEL REEVES: Well we can’t change it out of power and so we have urged a different course now including a cut in VAT to help struggling families with the cost of living and a reduction in National Insurance to help small businesses but at the next general election we know that the budget deficit is still going to be with us because the government would have failed its own test of eliminating the deficit in this parliament so we don’t know what the financial situation, the economic situation will be at the next election so we’re saying we cannot promise now to reverse any of the tax increases or spending cuts that the government have put through during this parliament. So we urge a different course now, we hope that they will listen to us when we say they are cutting too far and too fast but at the next election we know we can’t go into that election at the moment promising to reverse what they’ve done.

DERMOT MURNAGHAN: But as you’ve analysed yourself in the past, the Shadow Chancellor has done it as well, you’re not credible on the economy, the key battleground and then with this announcement as well, you’ve also alienated those who have been supporting you in these tough times, namely the unions, public sector workers and others.

RACHEL REEVES: A year and a half ago Labour were kicked out of office and it is really important that we recognise why that was the case. Leading up to the next election we need to rebuild that trust and that credibility that frankly we lost and that’s why Ed Miliband and Ed Balls are setting out and doing. We always said whoever was in government in this parliament was going to have to make tough choices, tough choices on tax, tough choices on spending and so in opposition it would be irresponsible for us to say that we oppose everything which is why Ed Balls said yesterday that we don’t like it but we accept the need for tough pay restraint in the public sector because the choice really is will be go along with that pay restraint or will we say that there has to be even more job losses in the public sector and we think that jobs should come first, that we should try and keep people in work because that’s what’s good for them and their family incomes and it’s good for the economy as well because more people in work means less being paid out in benefits and more received from taxes.

DERMOT MURNAGHAN: Okay, so given this, it is a clarification because you never were clear about what you would do over public sector pay, it is a clarification of policy but those other parts, the proposals you’ve had in terms of helping out the economy – the VAT cut, the cut in National Insurance, they stay? You’re still committed to them?

RACHEL REEVES: Yes, Labour’s five point plan for jobs and growth which includes the reduction in VAT temporarily and also the National Insurance holiday and of course repeating the tax on bank bonuses to bring in money to pay for 100,000 new youth jobs and the construction of 25,000 new homes, we think those are the right things to do because it helps get people back to work and it helps businesses succeed so actually as well as getting jobs and growth back on track, it will help reduce the deficit because what the government are finding, and actually Standard and Poor’s rating agency have said this, austerity alone is self-defeating. What you need to have as well as the tough decisions on tax and spend, is jobs and growth because unless you have got people in work paying taxes, unless you have got businesses succeeding, you end up paying more out in welfare and getting less in in taxes.

DERMOT MURNAGHAN: You mentioned Standard and Poor and that analysis, I mean they say it pretty starkly don’t they, that it is not necessarily the austerity programme you have in place, it is the lack of growth, when they were talking about France and others. Do you think that Britain should be downgraded on that analysis as well?

RACHEL REEVES: Christine Lagard who is head of the International Monetary Fund, has also said that markets, of course they care about deficit reduction but they also want to see that a government has got a plan for growth as well because you need both components. If you look at for example Japan in the 1990s, they’ve entered a recession. Their debt at that point was very low but it is now around 200% of GDP.

DERMOT MURNAGHAN: But what Standard and Poor said about France and Italy and others, they said right, okay, you’ve got the austerity programmes in place but they’re hitting growth, precisely the Labour Party’s analysis about our current government. You have got sky rocketing debt, precisely the situation in Britain so if Standard and Poor is right about France and Italy and others, shouldn’t they downgrade Britain?

RACHEL REEVES: Well that’s a choice for them and certainly we hope that Britain won’t have its credit rating downgraded but what Standard and Poor’s analysis is saying is that you’ve got to have that jobs and growth and now of course we are in a very different situation because we’re not in the euro, Labour made the decision not to take us into the euro, so we don’t have similar challenges that those countries face but the analysis is very clear, you’ve got to have jobs and growth, otherwise the deficit reduction plan is not credible or sustainable because it means you end up paying more out in welfare and getting less in in taxes.

DERMOT MURNAGHAN: Okay, Rachel Reeves, thank you very much indeed. Shadow Chief Secretary to the Treasury there.