ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN: Now then, you may have seen earlier I interviewed the Bank of England Governor, Sir Mervyn King. He told me the UK economy is now in a recovery period but he also gave me his views on issues such as banker bashing, George Osborne’s Help To Buy Scheme and what would happen if Scotland were to vote for independence. Well here with me now to discuss some of that are the former Labour City Minister, Lord Myners, the former Treasury Minister who now sits on the Treasury Select Committee, Brooks Newmark and one of Sir Mervyn’s former colleagues, Marion Bell, who used to sit on the Bank of England Monetary Policy Committee. A very good morning to you, I want to start obviously with the state of the economy. Sir Mervyn, a bit of a smile playing across his lips Marion, as he talked about a glimmer of growth in the economy after we’ve been through but it is hardly rampant green shoots is it?

MARION BELL: Well no, I think Mervyn’s right on this. The data is looking better, we have always had this odd discrepancy between what’s happening with unemployment and GDP growth, it’s quite common as you enter the recovery stages for GDP, gross domestic product output, to be revised up. I suspect that after lots of distortions to the data which really muddied the waters last year that once we see some revisions and some more data, that the recovery probably started some time last year.

DM: Okay, well let’s bring the others in here, Brook Newmark, the other point he made there which is very clear of course is the threats, particularly the external threats to the UK economy, are still there and could derail all this and we could be growing much faster if our major export markets weren’t in such trouble.

BROOKS NEWMARK: Given we do 50% of our trade with Europe, I think you look at the Mediterranean countries and they’ve all had declines of between 2-4% so I think that is a drag on our growth, so I think the Governor has been doing the right thing to try to stimulate the economy, I think the Chancellor has been doing the right thing. I think he’s right to be optimistic, I’m an optimist as well and I think that growth will be trending at around 1% by the last quarter of this year and probably close to 2% next year so it’s slow, it would be faster if what was going on in Europe wasn’t as bad as it is but I think he’s right to be leaving on an optimistic note.

DM: But is that note, Lord Myners, that there are still potentially huge threats out there, something awful could happen in the global economy again and is the locker empty now at the Bank of England in terms of what they can do? They have already thrown the kitchen sink at it?

LORD MYNERS: It would be pretty extraordinary, Dermot, if the economy wasn’t beginning to recover now. We’ve seen six years of no growth, our loss of output is truly astronomical, the failure of government policy to restimulate economic activity is still costing our economic output a great deal. There are risks out there that government can do nothing about, the external ones, but there are things they can do internally. The march of the manufacturers which George Osborne spoke about has clearly not taken place, the rebalancing of the economy, we’re now relying on a housing bubble. This government is stimulating a housing bubble which was the very think which caused the banking crisis.

DM: That was the very point I put to him, Lord Myners and I just want to run that actually, just where he talks about that and he has real concerns about the guarantee being offered here.

SIR MERVYN KING: I’m sure that there is no place in the long run for a scheme of this kind. This scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis and we need to get back to that healthy mortgage market. We do not want what the United States have which is a government guaranteed mortgage market.

DM: Marion Bell, is that code for the Governor saying I am very, very concerned indeed and in actual fact I’m not sure they should have done it?

MB: More than likely although in the Inflation Report press conference he did say that it might have a benefit short term but you certainly wouldn’t want it in place long term and he pointed out that the Bank had been asked to review it after three years. But I think where he’s coming from is the view that what laid behind the crisis is private sector, not public sector, debt and the last thing we want is to have another debt bubble.

DM: Well let me bring in Brooks Newmark, then we are in danger of repeating the mistakes of the past aren’t we? We haven’t had the march of the makers, we haven’t rebalanced the economy so the political cycle is potentially …

BN: I’d rather look at the glass as half full than half empty. We have created over a million and a quarter jobs in the private sector, we have been bringing the deficit down. I think people who are borrowers, i.e. they are home owners or people who have small businesses, they have had record low interest rates. All those things are positive things and I think what we have, the problem we have got today and what the government is trying to address is we now have a generation of people who have not been able to get homes. My generation, our generation, were able to get on to the housing ladder. What we’ve said is that we are going to try for the next three years to try and stimulate the construction sector, we are going to try and give people an opportunity to get on the housing ladder and go from there.

DM: But you are talking about the housing ladder as if it only goes up, what about if the rungs are sawn through and …

BN: You are absolutely right but the people out there aren’t idiots, they’ve now seen what has gone on when the market has gone down, so they know the risks there but I think we have to trust people to make judgements which is why they have been asked to put up a certain amount of equity themselves. This is not forever, this is for three years. A judgement call will be made in three years as to whether it is working or not and I suspect it won’t go on forever.

DM: I’ll let you come back on that Lord Myners.

LORD MYNERS: Well what the government’s policy is doing is driving up the value of houses, the price of houses, which is going to make it harder for people to get on this mythical ladder that Brooks talks about. What we need to do in housing is to stimulate more building, in fact this government’s programme is about allowing millionaires to borrow £600,000 to buy a buy to let property …

BN: Come on, that is complete political speak. The left have been moaning for ages now that people have not been able to afford houses. What we have done now is provide an opportunity for people to buy a house. It is not about millionaires and you know that perfectly well.

DM: I don’t want to stick on this but there is a very interesting debate to be had. Marion, I want to bring in another clip here and let’s all comment on this, what Sir Mervyn had to say about who was responsible for the crisis. Now everyone thinks it was bankers and Sir Mervyn says yes, but it’s more nuanced than that. Let’s have a listen.

SIR MERVYN KING: Don’t demonise individuals here, this wasn’t a problem of individuals, this was a problem of the failure of a system. We collectively allowed the banking system to become too big, we gave it far too much status and standing in society and we didn’t regulate it adequately by ensuring they had enough capital.

DM: Well he says there they didn’t regulate it properly but who was in charge? Was it Sir Mervyn himself Marion?

MB: Well no, actually, and I think that was one of the problems. We had this kind of tripartite system of regulation with the FSA, with the Bank of England and ultimately the Treasury underwriting the activities. The Bank only had power to look at broader financial stability issues which it did actually and it mentioned in a lot of the Financial Stability Reports the risks that were building up and that there was a problem if risk was repriced. It didn’t actually have any tools to do anything about it and I don't know, I wasn’t in that area of the Bank, I don't know, but it seems to me that there was a disconnect between the three bodies responsible, they weren’t joined up.

DM: That was the point the Governor was making there, that the new regime is different, therefore it is better structured should something like that occur again.

BN: It is but he can’t escape some form of responsibility. He is the Governor of the Bank of England, it sort of says it on the tin what he is responsible for.

DM: But with a narrow inflation target agreement.

BN: Yes, but he never really said anything. If you look at the transcripts of what he’s doing, he’s like a back trader, when something happens he says, well I sort of told you so but he didn’t tell you so. The fact is that the tripartite system set up by the Labour party was a flawed system, we have now brought it back together under one roof so you don’t have responsibility falling between three stools which is really what happened there. The other point …

DM: No, we haven’t got a lot of time, I’m going to let Lord Myners come back on that, a lot of those bankers that we shouldn’t demonise, you gave them knighthoods and lordships as well.

LORD MYNERS: I didn’t give them knighthoods and lordships! But I think that’s by the way, I think the key issue is that there were multiple errors made by government, by the regulators, by the Bank of England and by the banks but the Bank of England made some major errors. Mervyn failed to see the problems building up, he then got hung up on this concept of moral hazard which meant that we didn’t take early enough action and if we had taken action in 2007 then some of the problems we had later on would not have emerged and so Mervyn, the judgement of history which with Governors is written about a hundred years later, will say that he failed in two very major respects and also a third one, that he failed to modernise the Bank so we should hope that Mark Carney makes this Bank more open, more transparent, more available to business and to others than it was under Mervyn, hiding behind a very high and thick wall.

DM: Okay, tell it like it is! Lord Myners, thank you very much indeed. Brooks Newmark, Marion Bell, very good to see you all, thank you all very much indeed.