Page last updated at 15:46 GMT, Friday, 28 November 2008

Martha Kearney's week

By Martha Kearney
Presenter, BBC Radio 4's World at One

A leak enquiry in Whitehall is normally a standing joke. Stories emerge from government departments all the time but very rarely is anyone caught.

French Finance Minister Christine Lagarde
French Finance Minister Christine Lagarde is sceptical about VAT cuts

Generally the leaks tend to come from political sources, special advisers or ministers. Arrests are rare and the idea of an MP being held for nine hours is unprecedented.

Tony Benn told Shaun on Friday's programme that the detention of Damian Green was a breach of the privilege of parliament.

In the past the veteran Labour politician himself advised civil servants who wanted to be whistleblowers to write to an MP and then they would be protected. He said this reeked of a police state.

Michael Howard told WATO that Gordon Brown had made his career by exploiting leaks when he was in opposition: under this regime he would have spent half his time under arrest!

Leaking was also a feature of this week's Pre-Budget Report.

Election promises

By Monday we all knew that VAT cuts and a new tax rate for the wealthy would be the centrepiece.

We won't know if the government's billion pound gamble has worked for at least a year - and even then its success will not be an easy one to trumpet.

Even if the stimulus does work, the country will still be in recession in a year's time.

Against a backdrop of possibly three million unemployed, ministers will have to argue that it could all have been far worse and that the recovery is happening much faster than it would have done without a fiscal stimulus.

That is a tough case to put to voters with a general election looming especially with the kicker - Read My Lips, Loads of New Taxes.

I can not remember a government going into an election with a firm promise to raise National Insurance.

That's the best case scenario.

So will the measures in the pre-Budget Report work? Will people spend more and so give a boost to the economy?

Clearly that was what the two and a half percentage point cut in VAT is meant to achieve.

VAT doubts

That tax cut was chosen rather than simply posting people a cheque (as they did the United States) to avoid the money being saved rather than spent.

It is of course one of the big ironies in the current crisis which has been fuelled by banking and personal debt that the government should be actively encouraging consumption rather than saving (it has made me feel slightly patriotic rather than extravagant on shopping trips lately).

But there are many sceptics who wonder whether the VAT route is the right one.

On Wednesday at around twelve a call came through for me at TV Centre.

I was down at Westminster for Prime Minister's Questions.

All this economic gloom should have meant a political boost for the Conservatives but the poll gap is still narrowing with Labour

A French voice asked to speak to "Mar-ta Kee-arney". A nicely protective producer explained that I was quite busy and asked to take a message.

"I am Christine Lagarde, the French Finance minister".

We had bid for her but had not expected that the French Chancellor of the Exchequer would make her own calls.

Yes, she was put through to me.

It was the day of the European Commission's own economic rescue package. What did she think of using VAT cuts to boost demand?

"Well, I do not like to disagree with my friend Alistair…..(long pause)….Darling (which she made sound like an endearment)…but as far as we're concerned...we're not certain that when prices go down a VAT reduction is that effective."

'Lack of urgency'

Whatever the rights and wrongs of the VAT cut, it is clear that no recovery plan will work until the banks start lending again.

Figures on Tuesday showed that mortgage lending was down again after a temporary lift in the September figures.

The government is clearly frustrated that after the £37bn recapitalisation plan along with guarantees on interbank lending that money has not been flowing out to businesses and homeowners.

The Treasury minister Ian Pearson talked of holding "banks' feet to the fire" to "make sure they do the right thing by small businesses and by people who want mortgages."

But are there levers which the government should have been using?

Our editor researched government statements at the time of the recapitalisation plan in October when Alistair Darling promised that non-executive members would be appointed to the boards of the banks accepting government cash "within a few days".

That still has not happened.

Vince Cable told us he was "amazed at the lack of urgency" and accused ministers of "dragging their heels" given the "real crisis" businesses are facing.

Gripping accounts

The Treasury said that the directors would only be appointed once the recapitalisation plan had gone through.

All this economic gloom should have meant a political boost for the Conservatives but the poll gap is still narrowing with Labour.

They will also have to fight hard to counter the charge made by Labour that the party does not care about the crisis after Shadow Health Secretary Andrew Lansley's blog this week that the recession can be good for you (admittedly after he had talked about the human misery it causes) and Tory MP John Maples' line about letting the recession take its course.

British political news has rather been cast into the shade towards the end of the week with the terrible news from Mumbai, a city I have visited many times.

Some of the eyewitness accounts have been gripping.

We spoke to a businessman who'd barricaded himself in a room in the Oberoi for twelve hours.

Another told the Today programme with true British stiff upper lip "This hasn't been the most pleasant of experiences".

All the speculation about the motivation of the attackers has made the novel I am reading this week "The Reluctant Fundamentalist" by Mohsin Hamid seem particularly relevant.

I am really enjoying this story narrated by a man in a Lahore café who has been betrayed by the American dream.

Martha Kearney's week
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Martha Kearney's week
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