ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN: David Cameron has admitted there are profound areas of disagreement in the coalition, that’s after almost a third of his MPs voted against Nick Clegg’s proposals for an elected House of Lords, so does the coalition still have a future? Let’s say a very good morning to the Energy Secretary, Ed Davey, and can I start, Secretary of State, by asking you if you recognise that description by the Prime Minister of profound disagreements within the coalition?

ED DAVEY: I don’t think it should surprise anybody. We are two different political parties with very different philosophies and values and histories, so of course there will be differences but we have come together because there is an incredibly important issue that we have to work together to help our country. There is a huge financial and economic crisis, I don't know if you’ve noticed, and we have to tackle that and that means some tough decisions and actually I think it’s better that the two parties put aside their differences as much as they can in order to work for the good of the country to get out of the mess that we’ve inherited.

DM: You may see this as semantics but the Prime Minister has gone beyond terming it differences, as you use, he is saying profound disagreements. We know about House of Lords reform, where else do these disagreements lie?

ED: Well for example we would want to be tougher on the banks. We have got a very tough policy on the banks because we’re in the coalition but I think Vince Cable has got a very strong record, the Liberal Democrats have got a very strong record, of making it clear that we really need some profound changes in our banking system. Take tax, the Conservatives have always tended to emphasise tax cuts for the better off and the wealthy, the Liberal Democrats have argued for tax cuts for the low paid and people on middle incomes and I’m delighted to say that the coalition has put forward a proposal where there have been, yes, some tax cuts for the wealthy but the far largest tax cuts have come for people on low pay and middle incomes. We’ve taken millions out of income tax, that’s a huge achievement. It may be it’s a bit of a difference between the two parties but I think it shows that Liberal Democrats have had a very positive and a fairer approach to things and I think that’s working.

DM: Do you think the coalition can continue to work and last until schedule, till 2015, in that you know from the Lib Dem side that a lot of the activists are saying you’ve got to take a tougher line now, you in government, you sitting on those front benches, you’ve got to take a tougher line on those Lib Dem red lines and then we’re hearing from the Conservatives in the form of Liam Fox today, now free from his Cabinet responsibilities, saying they ought to take a tougher line with you, you’ve got one sixth of the MPs compared to the Conservatives.

ED: Well I think we have still got a lot of work to do to sort out the financial crisis we inherited from Labour and also to get the economy on a secure footing. There are huge problems that the world economy is going through, we have high oil prices, we have the eurozone crisis which is causing problems for exporters, so we have to make sure that we are getting our economy growing again and as Energy Secretary, for example, and with our climate change policies, we are making sure there is going to be real investment, there has been investment but we want to see more so that we can get jobs and growth in that long term sector of our economy so we’ve got a lot of work to do and I think we can come together on that despite our differences.

DM: Okay, you’ve moved us on to what I wanted to get on to which is of course your brief, and let me relate it to disagreements. We know when it comes to wind farms the Chancellor and you don’t exactly see eye to eye about some of the subsidies that should be given to encourage more of them.

ED: Well I would disagree with you, I think we do all feel that we need to make sure we have cleaner energy and that we move from our polluting energy forms like coal to much cleaner energy forms like wind, solar, biomass and all the renewables so I think we do realise and we do all agree that that has to be done. There are debates, there are always debates about the size of the subsidies, how quickly you can reduce them and so on and they are valid discussions but I think they would take place in any government.

DM: Right, well let’s be direct, do you think you could afford some cuts in those subsidies for onshore wind farms?

ED: I am proposing cuts in subsidies, I am proposing that we cut the subsidies by 10%.

DM: But we know that the Chancellor wants to go to 20 or 25% supported again by a lot of his backbenchers who just don’t like them full stop.

ED: Well you say that but I don’t think there is any actual real evidence for that. We are focusing very much on making sure that our policies are decided by the evidence. We’ve consulted for a long time on this, we’ve had over 4000 responses to our consultation, a huge amount of evidence, and it is really important that we take the decisions based on that evidence and the evidence really looks at for example how the costs are coming down in different forms of renewables, whether it’s onshore or offshore, whether it’s solar, whether it’s biomass, whether it’s marine and so on, so that we make sure we are targeting our subsidies in an effective way so that we can have cleaner energy, we can have more renewables, that’s critically important if we want to tackle climate change and we want to make sure that our energy supplies in our country are far more secure than they are at present. So there are judgements to be made but I think we are going very much in the right direction.

DM: But time and again you get advice from a variety of quarters I know saying if you really want to be green, you want to do it urgently and you want to boost the economy with those infrastructure projects, the oven ready stuff is nuclear.

ED: Well nuclear is part of the coalition agreement and there are a family of low carbon technologies if you like, you’ve got all the renewables that I’ve been talking about, you’ve got new nuclear, you’ve also got carbon capture and storage and we are creating a reform of the electricity market which will enable all these low carbon technologies to come forward. We have a Bill before parliament at the moment which is getting proper scrutiny before we debate at a Second Reading later this year which is a profound reform of the electricity market, to make sure that the market signals incentives move away from dirty fossil fuels towards all the low carbon technologies, whether that is renewables, new nuclear or carbon capture and storage. I think that is the right approach, it is a very fundamental reform, it won’t all happen overnight but it is part of what this government is about. This government is about making long-term changes that promote investment, promote growth but also promote real change and the real change we want to see is to make sure we are no longer polluting our skies and adding to climate change and we are also making sure that our energy supplies in this country are more secure. As we are seeing the oil and gas in the North Sea run down, we’re having to import at the moment because we use so much fossil fuels a lot of energy from abroad, from the other side of the world. That means we are less in control of our energy supplies and we are also very exposed to volatile fossil fuel prices and at the moment people are paying high gas and electricity bills because we are having to import expensive oil and gas from abroad in greater quantities. If we are looking into the long term, not just this decade but the 2020s and the 2030s, we’ve got to make sure we are not so reliant and so dependent on imports of volatile priced oil and gas, that’s why renewables, that’s why carbon capture and storage, that is why new nuclear is so important.

DM: Just one source you seem to have left out in that long list is shale gas. Does that pollute the skies?

ED: Of course it does, like all fossil fuels but let’s be clear on shale gas, I think it could have a role to play. We’ve got to make sure it’s properly regulated if we decide to exploit shale gas in this country, just as we have exploited in the past oil and gas and coal, so we’ve got to make sure the regulation is absolutely the toughest possible but it would be wrong to dismiss the possibility of shale gas. The real question though is what impact would shale gas have and there are some people who try to suggest that it’s going to dramatically reduce gas prices almost overnight and we exploit this shale gas option today. I am afraid it is going to take a lot longer to exploit and I don't think it will have the price reduction impact that many people think. It is actually quite an important technology because China and Ukraine and Algeria have a lot of shale gas, that will have an impact on world markets but if you talk to the independent analysts, people at the International Energy Agency for example, they see despite shale gas becoming more available around the world, they still see gas prices going up over the next few decades. So given that, it would be completely irresponsible and expose our consumers, our households and our businesses to ever-increasing energy prices if we didn’t take the tough measures we’re going to take now and it means that we can in the future look forward to more secure and cleaner energy. That really must be the way to go.

DM: Lastly, Secretary of State, can we just return to an issue I don't think we quite closed off in our opening discussions. Do you now effectively accept that House of Lords reform, as you as a Lib Dem would like to see it, is effectively dead?

ED: Not at all. People are forgetting in this debate that we had an historic vote in the House of Commons just recently when a huge majority voted in favour of the principle of a democratically elected House of Lords. That’s a real step forward, it hasn’t happened before and I also believe that because it’s part of the coalition agreement, the Conservative party will want to honour their agreement. I am delighted the Prime Minister has said he is going to have another go. Actually while I’ve been disappointed in the opinions of some Conservatives, only some Conservatives, remember that, I’ve been absolutely dumbfounded by the political games of Ed Miliband and the Labour party. The Labour party used to be a party that believed in reform, that believed in progressive politics, that wanted to make sure we didn’t have hereditary peers and elected peers. They voted for the principle of the Bill but now they are playing parliamentary games, political games, to try to derail House of Lords reform. I think that’s unforgiveable and I think there’ll be Labour supporters and Labour members and Labour voters out there who will say what on earth are the Labour party doing? There is an historic opportunity to build on the democratic principle that people who pass the laws over us should be held accountable to us and Labour is ducking that. That is a travesty of what Labour used to stand for.

DM: But just on the Prime Minister, if he doesn’t do what you want to see him do in terms of pushing again with his own back benchers, his own rebels on House of Lords reform – I was listening to Menzies Campbell earlier this morning on the BBC saying you can’t look at House of Lords reform without looking at the boundary changes, it’s all about constitutional change. Would you see the two as linked and if House of Lords reform happens perhaps you won’t look at those boundary changes or won’t support them?

ED: Well as Menzies was saying on Andrew Marr, the coalition agreement isn’t a pick and mix, was his phrase, it isn’t a pick and mix agreement, you’ve got to deliver on all of it so we are expecting the Prime Minister and the Conservative party to deliver on the coalition agreement.

DM: Okay, Ed Davey, thank you very much indeed, the Energy Secretary there.