Murnaghan 2.12.12 Interview with Alistair Darling, former Chancellor, on the Autumn Statement

ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN: Now the Autumn Statement has often been called a second budget but this year it’s a second chance, it’s an opportunity for the Chancellor to rehabilitate himself after all the mistakes of the March budget. Let’s say a very good morning over in Edinburgh there to the former Chancellor, Alistair Darling. Mr Darling, I mentioned in the introduction that we’re almost getting two budgets a year and it’s something that seemed to start under Labour. Is there a danger that there is too much tinkering going on with the economy in this frantic attempt to start growth?

ALISTAIR DARLING: Well look, you’re right, there has been two budgets a year since 2008, it’s not surprising given the economic crisis that we’re still in. However the second point you make is absolutely right as well, at the heart of our problems at the moment is the fact that we have no growth. Growth has petered out again and we’re expecting, the Chancellor predicted earlier this year that our economy would be growing at nearly 1% and in fact most people now think it has now stalled again so the heart of whatever he does on Wednesday must be proposals to get the country going again, because if you don’t do that you’ll never get the revenues to bring down borrowing and then to bring down debt.

DM: Okay, we’ll talk about some of your recommendations in a moment but on the targets first of all, you mentioned growth, what about this target to have debt as a proportion of GDP falling by 2015/16? Is that something that a Labour government would never have had as a target in the first place?

AD: Well when the Chancellor took office he announced two targets. One, he would balance the books by 2015, that’s now slipped to at least 2018. He said he would reduce debt as a proportion of our national income by the end of this parliament, it looks like he’s missed that one too. In fact he is borrowing more this year than he expected, he is borrowing £150 billion more than he expected in 2010, he is wildly off all his targets and that strikes at his very credibility and the credibility of this government’s economic judgement and at the heart of it is this foolish notion they embarked on two years ago that they could do all this in two or three years, we’d be powering towards growth now. The problem is that they’ve choked off growth, they trashed confidence when they came into office and they have absolutely no plans, no proposals that would make any significant difference to growth and that is why I think it is so important this Wednesday that he sets out a clear sense of direction in rebuilding our infrastructure, transport, energy, housing and so on and that he’s got something to do say about getting people back into work because unless you do that your welfare bills will continue to climb. Instead you’ve got a complete bankruptcy of ideas and that is at the heart of George Osborne’s problems and therefore the problems of the whole country now.

DM: Well as he searches for revenues we’ve got some specific ideas being floated and well trailed, one this top rate tax relief for pensions. Now of course it was Labour who introduced this phenomenal ceiling of over a quarter a million pounds, if you pay 40% tax you’ve got £100,000 tax relief a year, it’s surely right that the Chancellor has knocked that down to £50,000 and might go further?

AD: Well it is right to reduce that, I started that process in my last budget so it has been coming down. What I would say though is once you start coming down much further you will start to hit the pension arrangements of people who I don’t think people would regard as being particularly well off. Part of the problems that George Osborne has got here, one of the reasons that he is desperately trying to find revenue from here or from welfare savings and so on is because he doesn’t have the tax revenues that you’d expect if the economy had been growing and of course your welfare bills are much higher if the economy isn’t growing because there are more people out of work and there are more people in part time work and that is why, as I say, you can look at those things which will simply try and put sticking plaster on the problem but unless you deal with the root cause of the problem which is lack of growth, then you are always going to be fighting what I think is going to be a losing battle and that’s the problem that he’s got himself into.

DM: We are getting into the old political argument, aren’t we, about well we wouldn’t start from here but of course an incoming Labour administration would have to deal with the books as you received them and you mentioned there benefits and their growth in difficult economic times, would it not be something that Labour could endorse, the freezing of benefits at this point?

AD: Well of course whatever the state of the books are in 2015 or whenever the election is, that’s going to be our starting point and I daresay that the Shadow Chancellor and Ed Miliband will be setting out their proposals then, that’s for them not for me. I don’t speak for the Labour party anymore from the front bench but what I can say though is that I think in relation to welfare, yes of course it needs to be reformed, things like Housing Benefit and so on, there are other areas too, however this is not going to solve the economic problems that we’ve got at the moment. You can say it’s politics, well what else is economics? It’s politics and Wednesday’s statement is going to be a political statement as much as anything else but unless you actually deal with the root causes of the problems that we face then you’re not going to get borrowing down, which everybody agrees is necessary, nor will you get debt down which everybody agrees is absolutely necessary too, you’ve got to get growth going again and there’s many things you can do in this country which would help that process – manufacturing for example and the construction industry, they’re the two sectors that are particularly badly hit at the moment, where some of the big infrastructure projects that we desperately need in this country would I think go a long way to restoring confidence, even having some semblance of a transport policy might also help the construction and the manufacturing sector as well. If you get that going then of course you can look at the welfare reforms you need to make anyway, you can also look at the tax system to make sure that’s fair but at the moment what we’ve got is George Osborne scrabbling around desperately trying to plug holes that are largely of his own making.

DM: So do you think the Chancellor’s approach should be to say yes, I’ll do those things that I’ve heard from Mr Darling, I’ll have to borrow a little bit more, miss my targets, I might put the UK’s triple A credit rating at risk but that doesn’t matter?

AD: Oh hold on. Look, his borrowing is way off his target at the moment. You know, this nonsense that somehow whatever we propose would involve more borrowing doesn’t stack up. He is borrowing more now than he intended to this year, on Wednesday he is going to have to say that he is borrowing more. His debt is not going down as he intended, it is going up and he is way off track. The reason he is way off track is actually the timing at which you reduce borrowing and reduce deficit, it matters. He denounced my plans in 2010 as being reckless, well actually he is going to take far longer than I intended to get his borrowing down, he is going to take far longer than I intended to get debt going down, he is way off target. Look, I’m sorry to come back to this point but the reason he is way off target is because growth has stalled. It wasn’t meant to be this way, growth was supposed to be powering ahead now but it is actually dead in the water. That is his problem.

DM: Indeed but we are back to the point that I made, aren’t we, that we are where we are. Yes, it might not have been this way if different things had happened in terms of where the pump had been primed but for those projects that you’re recommending, if more money were required on top of the debt that is already building or failing to be reduced, do you think he should go for it, do you think he should reduce the purse strings a bit?

AD: Look, this argument was had out seventy years ago in the 1930s when exactly the same set of arguments were raging of those on the orthodox austerity side who said all you’ve got to do is keep cutting and if that doesn’t work, cut again. And actually if you look at today’s example of where it is spectacularly failing to work is in Spain where they are doing all this and the debt’s going up and the borrowing is going up. The alternative approach which was advocated in the 1930s in which the argument is as good now as it was then, and that is if you are going to be borrowing more anyway, isn’t it better to be borrowing to do things, for example we know that our transport system, our roads, our railways, our airports, we need to be spending money on them to make them fit for the sort of world that we hope we’ll be in in the next twenty or thirty years and yet take aviation, we will not make a decision on Heathrow’s third runway until midway through the next parliament. If you take energy, where the government is sending out mixed signals and look at the importance of this – we need new power stations, when we start to build them that will have a tremendous knock-on effect on the economy in terms of suppliers making the equipment that goes into them right the way down the chain, that will help manufacturing. Then there’s housing, we have got a huge dearth of housing in this country, in most parts of this country and frankly changing the planning laws so you can build a conservatory isn’t going to make a blind bit of difference to the economy. I understand the simplistic argument that the Tories want you to believe, that actually all that would cost more money. Well actually you’d want to get the private sector and the pension funds in and so on that would help that but as things stand, George Osborne is on course to be borrowing more and more and more. Why? Because we’ve got no growth. As I say, this was an argument that was fought out seventy years ago and actually not a lot has changed sadly, we find ourselves in the same dismal outlook hoping that something will turn up and it won’t.

DM: Do you think the Bank of England can have a role to play in economic recovery, particularly with the incoming Governor Designate, the Canadian, Mark Carney, is that something you welcome?

AD: Oh I very much welcome it. Over a year ago when his name was first floated I said it would be an excellent idea to look outside the UK and to get the very best and I think we have got the best candidate. He comes not just with his own experience from Canada, he’s got a lot of international experience and of course he worked in this country for over ten years, he knows this country very, very well and it will be interesting to see what exactly the Bank should be doing. For my part, I think that quantitative easing now appears to have run its course, I’m not sure that any more is going to work because if you actually want money to go directly into the economy then I think you probably want to do it through the government doing it through fiscal means rather than trying to rely on monetary policy or if they are going to do more quantitative easing they’ve got to show how that money is going to get out onto the high street. The government has been talking for example about a business bank and yet it doesn’t seem to be any nearer reality than it was when they first started talking about it. So yes, we do need to get more money into the economy and of course what the Bank of England does should be complementary to what the government is doing but I think at heart actually what is wrong at the moment is what the government is not doing.

DM: So it is a reshaped Bank of England after all the failings of regulation in the past, some of it of course on your watch, do you feel it is too big a job for however able a candidate there is there with the new regulatory powers as well?

AD: Well you are asking the Bank of England to take on an awful lot and my reservation about putting regulation in there is you’re asking it to fix interest rates, supervise the banks and in addition to that this new power has got to try and head off economic crises before they arrive, something that’s been written about extensively but nobody has actually succeeded in doing it or even trying to do it. So yes, the new Governor is going to have a huge array of responsibilities and powers, I’m quite sure he is up for it. You asked specifically about the Bank of England, I do think the government has not got the governance of the Bank right yet because you’re asking the Bank to do all this without actually reforming its own constitution which might have been fine in 1946 but it’s not really fine for the 21^st century but I’m confident that’s something Mark Carney will get to grips with.

DM: And lastly, Mr Darling, can I just ask you something off the economy, on the Leveson Report and Labour’s response to it, more or less that it should be implemented in full. Do you think that’s something that Labour should stick to given the implacable opposition of the newspaper industry?

AD: Look, the central recommendation that Lord Leveson made was that there should be an independent regulator. Everybody is agreed about that, whether it is the government, opposition, even the newspaper industry. The division is whether you give it legal underpinning to give it bite. Now I honestly can’t see how simply giving something a legal underpinning like that somehow erodes the freedom of the press, something that I think all of us hold very dear to us. Even if David Cameron, who remember said he would implement Leveson unless his ideas were, to use his words, bonkers and I don't think anybody, there is nobody who thinks this central recommendation is anything like bonkers. Even if he’d said we’ll give the press two years to come up with something and if they don’t then I’m going to legislate and here’s the legislation ready to go, then it might have done the trick but he’s not doing that, he seems to have shut his mind off that. But I do think, having listened to Leveson, having got all the evidence, I think most people would believe that yes, there needs to be a proper independent regulator taking the place of the Press Complaints Commission which frankly is a pretty toothless thing but I honestly can’t see why if you have statutory underpinning of that to give it some legal status, I don’t actually think that would go all the way to undermining freedom of the press which is, as I say, something nobody wants to interfere with.

DM: Okay, Mr Darling, many thanks. Alistair Darling there, former Chancellor of the Exchequer.