ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN: The most recent GDP figures tell us we could be halfway to a triple dip recession. When the numbers were announced last week business leaders and some politicians weighed in to question George Osborne’s austerity programme so is it time to think again? In a moment I’ll be speaking to the former Chancellor of the Exchequer, Lord Lamont. Let’s say a very good morning to the former Chancellor, Lord Lamont, and on that issue of halfway to a triple dip recession, of course those figures might well be revised at that 0.3% dip in the last quarter but you’ve seen the IMF, Goldman Sachs, the Mayor of London, all saying perhaps it’s time to think again about the austerity programme, is the hair shirt being overdone?

NORMAN LAMONT: I don’t think so. Obviously those figures were extremely bad, they will as you say almost certainly be revised possibly upwards. We are living in a period when a lot of the world is in a very similar situation. Germany had a fall of 0.5%, an even bigger fall, in the last quarter of the year so when you say the IMF’s view, the view you were quoting is the view of the Chief Economist, it’s not I think the view of the Director of the IMF and we will actually find the IMF’s full view in May because there is a consultation, they have to give a verdict on the British economy. But you know, we haven’t had massive austerity in this country compared with what other countries are doing. We began this crisis with a deficit that proportionately was the same as that of Greece, today the deficit of Greece is much lower than ours proportionately. The same is true of France, the same is true of Italy, Spain is about the same as us, probably a bit lower but we have the highest deficit of any country in Europe and I think we have the highest of any developed country.

DM: But you know the argument, the counter arguments, I mean put about the height and size of that deficit as well, because the economy is still faltering and all those revenues that we expected to come from growth are not coming in so the deficit reduction strategy can’t happen as fast as you’d like to see it, so why not bite the bullet, take a bit of a gamble perhaps and give some stimulus? If the triple A rating goes then so be it, it didn’t affect France or the USA.

NL: This isn’t being done because of the triple A rating, it’s being done because it is a problem. We have a very high indebtedness in this country, when countries get 100% debt to GDP, that is a real danger point and it kills future growth according to many economists. We look likely to top out at about 80% of GDP, if we were adding to that at the rate of 8% per annum, the rate we are now adding, we would soon be in the real danger zone. I don’t believe the reason the economy is slow is because of any so-called austerity programme, it is because this is a very unusual recession. It is a recession that has been caused by too much borrowing both public and private and it takes time for that indebtedness to work itself out of the system. The Governor of the Bank of England made a good point when he was saying the banks not just have to deal with the loans they’ve made but the banks themselves borrowed heavily in order to finance lending and the banks themselves had to deleverage and I think what is really holding back the recovery is the health of the banking system. It is that far more than the government’s so-called austerity programme and I think what the government ought to concentrate on is not having more borrowing but it would be on trying to get the banks to lend more.

DM: Well they’ve been trying that for some years without success.

NL: They could expand the scheme that they have now. I am not convinced that the FSA for example is encouraging new entrants into the banking system as much as they could be and not as easily as they should be. I saw the Chairman of Metro Bank the other day and he said he’d never have started Metro Bank in this country if he’d known what was involved in going through the regulatory approvals.

DM: Okay, so where does this Europe debate and this debate about a referendum, well it’s not a debate any more, there’s going to be one if the Conservatives are returned to power. Is it as we heard the Lib Dem leader saying this morning, he sees it as a distraction, Labour are saying it too, that the prime directive as we’ve just been discussing is fixing the economy and this leading the Conservatives up a side path.

NL: Well I thought it was very odd for Nick Clegg to say that because he promised a real referendum in the last manifesto that he wrote as a non-coalition party. I don't think it’s a distraction and I think it is something that circumstances are forcing on the government because there has to be a renegotiation because our relationship with the EU is changing because the EU is changing. The eurozone, which is the majority in voting terms of the EU, is integrating, it’s going to pass laws and regulations that affect us even though we’re not in the eurozone, so we have to have a renegotiation, there has to be a re-examination so I think what the Prime Minister said was actually to recognise the reality of what is happening.

DM: And do you hope after that renegotiation that we vote to stay in, would you campaign if you get the powers back that you’re envisioning there, would you vote to stay in?

NL: If the deal was a good one, yes, but I’m not going to make up my mind until nearer the time.

DL: But what about that point that Thorbjorn Jagland was making to me a little earlier in the programme, the former Prime Minister of Norway, saying and a lot of people are saying, well there are parallels between what the UK could do and the way Norway does it now, stay in the European economic area, therefore you’ve got access to the single market and you don’t have any of these other regulations and rules coming over from the European Union. He said be careful because what you end up with is you do get all the requirements of the single market but you don’t have a seat at the table to affect the shape of them.

NL: Well the Prime Minister specifically ruled out Britain having a status either like Norway or Switzerland and if the referendum went to a no, which the Prime Minister doesn’t want, I think we would have some completely different and new status but all this business that we don’t have a say in the regulations, selling in to Europe – the Americans and the Japanese, they sell in to Europe, they’ve no say in the regulations. Germany, France, they sell in to this country and they wouldn’t have any say in our regulations if they were selling in here and we were outside. I think it’s a much exaggerated point quite frankly.

DM: Okay, what do you think about big corporations, I mean this is a dimension of the EU debate and there’s also what is being said within this country about companies like Starbucks. We’ve heard them this morning saying, look, we’re a little bit upset about being the whipping boy, the poster boy for tax avoidance in this country when we’re a major, major investor, a major, major employer in the United Kingdom. Don’t you think that the Conservatives especially should let up a little bit on big business? These are the kind of people who invest in this country who actually make huge profits here and employ a lot of people here.

NL: I think one has to be very careful indeed with the rhetoric and not put off inward investors into this country. With corporation tax there is a large element of judgement about the amount of tax that companies pay and what is more important than the corporation tax is actually getting the employment and therefore getting the income tax and getting the national insurance, that is much more important than the tax than the companies actually pay so I think one has to be very careful not to discourage employment in this country.

DM: So you think we are getting too hung up on corporation tax, we should look I suppose at the VAT and national insurance and all the other taxes they pay? NL: Yes.

DM: Okay, well good to see you, Lord Lamont, thank you very much indeed. The former Chancellor of the Exchequer there.