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Page last updated at 12:29 GMT, Sunday, 6 December 2009

Moderate growth, lower spending

On Sunday 6 December Andrew Marr interviewed Chancellor of the Exchequer Alistair Darling MP.

Please note 'The Andrew Marr Show' must be credited if any part of this transcript is used.

ANDREW MARR:

Alistair Darling

Now however tough for the rest of the country, saddled with massive borrowing after the rescue of the banks, the good times seem to be rolling again in the City for those bankers. The Pre-Budget Report on Wednesday is the Chancellor's big opportunity to explain how he plans to get the UK out of its hole over the next few years, and, as we've heard in the papers this morning, they're crammed with stories about what he'll be saying. Well Alistair Darling is with me now. Good morning, Chancellor …

ALISTAIR DARLING:

Good morning.

ANDREW MARR:

… and thank you for coming in. Let's start with the general economic position. How bad is next year going to be?

ALISTAIR DARLING:

Well I think we will get moderate growth next year. I've always said that after the action that we took over the last 12 months, we will see the country, the economy moving into growth at the turn of the year.

ANDREW MARR:

1.5%?

ALISTAIR DARLING:

Yeah, it'll be moderate. And in many ways the choice that we have now is how do we ensure that we can get long-term sustainable growth in the future? You know this is a big country. We should be ambitious, we should be confident about our future. And I want to make sure that on Wednesday, I lay the foundations which will enable us to move from next year into stronger growth in the future because that's where the jobs are going to come from, that's where the opportunities are going to come from. If we want a fair and prosperous country, we've got to lay these foundations and starting this week.

ANDREW MARR:

The papers and economists are saying that you'll be a bit higher than the original £175 billion borrowing, but you're not going to break £200 billion. Is that about right?

ALISTAIR DARLING:

No. If you look at what's happened to us over the last year, we've had to maintain public spending, government spending to support the economy - otherwise it really would have crashed. And you know I can't over emphasise that. If we'd taken the advice of the Tories, we would have been in a much, much worse position. Now because we've maintained that spending and because of course our tax revenues have gone down, which in any recession you get that, our borrowing is much higher than we would want it to be. But one of the things that I need to do on Wednesday is firstly to make sure that we can secure the recovery, but then we've got to halve the deficit over a 4 year period. I believe that we can do that. To go further than that, as David Cameron is calling for today, I think would risk really damaging the economy and damaging the fabric of our country. I think this is a sensible move. It is a substantial reduction in our borrowing over a 4 year period, and indeed it's …

ANDREW MARR:

(over) Something like 40 billion?

ALISTAIR DARLING:

Well you'll have to wait and see on Wednesday. But what I'm in no doubt about - and this is you know absolutely non-negotiable - we've got to halve the deficit over a 4 year period. That means that once the recovery is established - and I say you know next year I think we will start to see moderate growth - once that is established, it is right that we do reduce this deficit. Now that means that public spending will be a lot tighter than it was in the past, but is off a base where we've seen public spending double over the last 10 years.

ANDREW MARR:

George Osborne was saying a few moments ago that, unlike the Conservatives, you haven't really laid out where the tough choices are going to come. You've said there will be tough choices, there will be tough decisions. Are we going to finally find out where those cuts are going to fall?

ALISTAIR DARLING:

Well I'm not doing a spending review now because it would be wrong because you know there's still a lot of uncertainty around. I've been saying for some time now that there's still the risk that something somewhere in the world could go wrong and unsettle things. So I'm not doing a spending review just now. But I do think it is necessary for me on Wednesday to indicate you know areas where we are going to cut spending or where we're not going to spend as much as we were. You know, for example, the NHS had a quite expensive IT system that you know, frankly, isn't essential to the frontline. It's something that I think we don't need to go ahead with just now. But I will be setting out a clear direction of travel because it's important that we do that. But the other thing we've got to remember is this; that you know …

ANDREW MARR:

Sorry, can I just stop you on that …

ALISTAIR DARLING:

Sure, go on.

ANDREW MARR:

… because, as we both know, the IT scheme - important - is small beer, it's very small beer.

ALISTAIR DARLING:

I'll give you one example.

ANDREW MARR:

Well, okay.

ALISTAIR DARLING:

Well I was simply citing that as an example.

ANDREW MARR:

(over) That's one example. What I was going to say to you, sorry, is that you know outside when the City and when the financial community around the world is looking at the government, one of the things they may be thinking is that actually this Labour government doesn't have what it takes to make the really substantial reductions that are necessary and mere words about general indications of where you want to go aren't going to be enough.

ALISTAIR DARLING:

No, I think the people do want an indication. And you know, never mind the City. I think the public as a whole want an indication because they're entitled to say well this is the choice before us and there'll be a big choice to be made in the first half of next year at some point.

ANDREW MARR:

So give me some indication of …

ALISTAIR DARLING:

(over) Well I'm going to do that, I'm going to do that on Wednesday. But I just wanted to make a general point. I do think it's necessary for us to reduce the deficit. I think it's necessary to show areas in which we are going to cut back or we're going to postpone spending, but don't ever forget that public spending actually can be a driver for growth in the future. For example, our capital spending on projects like the London Crossrail project or on ensuring that we've got decent schools because if we don't turn out children with good qualifications, then you know that would damage our recovery.

ANDREW MARR:

(over) Sure.

ALISTAIR DARLING:

So it's very easy to fall in … That's why I really think that David Cameron is wrong when he calls for going further - having a faster and far greater reduction. I think that would seriously damage our prospects in the future.

ANDREW MARR:

But with respect, it's also very easy to say we're going to do something dramatic - we're not going to tell you exactly what - one day in due course. Can I put it to you that you're going to have to make it clear that tens of billions of pounds is going to have to come out of public spending - you might not give a detailed figure - and that there is going to be something really quite serious and dramatic across Whitehall?

ALISTAIR DARLING:

Yes, on Wednesday I will set out what I think we need to do, and that will involve making some very difficult choices. It will mean public spending will be much tighter. But I've also said repeatedly, I also want to make sure that we can protect those frontline services that people depend upon and we mention - for example our commitment that if people are suspected of having cancer, they can see a specialist within two weeks and they can get the appropriate treatment as quickly as possible, or in relation to schools and so on. We've got to be able to reduce public spending, but at the same time make sure that we don't end up damaging the economy. And that I think is the difference between us and the Tories.

ANDREW MARR:

Every time I ask you about reducing public spending, you give me an example of an area where you're going to carry on spending.

ALISTAIR DARLING:

Well I've given you an example in relation to IT spending. I've given you, I've given you …

ANDREW MARR:

(over) What about these stories about senior civil servants, actually cutting the number of senior civil servants? That's grown quite a lot over the years - moving people out of London, you know really cutting down on bureaucracy. All fair enough?

ALISTAIR DARLING:

Yes, it's something that we need to do. We've already, you know in relation to pay, senior pay, we've already said that for top people that ought to be frozen. Yes, we need to get jobs to parts of the country that really could do with that additional investment. But I know it's, I know it's difficult …

ANDREW MARR:

(over) Sorry, can I just ask you about one other thing specifically …

ALISTAIR DARLING:

(over) Yes of course, you can.

ANDREW MARR:

… because it's been very heavily briefed in today's papers that you're not going to raise the threshold for inheritance tax. That's something that the Conservatives have made their position clear, and you're going to you know allow there to be quite a lot of water between you.

ALISTAIR DARLING:

There's a lot of speculation you know three days before a Budget or a Pre-Budget Report, and you know I'm going to hold my fire until Wednesday if you don't mind. What I would say about inheritance tax is that you know I really can't believe it would be the first priority of any government at this time to give a tax break to the top 2% of estates in this country, any more than if you look at the Tories' … the proposals for the married couples allowance.

ANDREW MARR:

(over) So you're not necessarily going to raise it, are you?

ALISTAIR DARLING:

People at the top end would get thirteen times more benefit than the people on lower incomes. I don't think that's a priority. The priority must be in any tax system that it should be fair, but you know the main burden of reducing our deficit will be as a result of lower levels of public spending than we've seen in the past.

ANDREW MARR:

And what about the people at the top more generally? I mean you've announced the 50% …

ALISTAIR DARLING:

(over) The top rate, yes.

ANDREW MARR:

… the top rate tax, but could that apply to more people? Do you think that the rich in this country, people better off, are paying enough? Are you going to hammer them yet again?

ALISTAIR DARLING:

No, look, all tax has to be fair, but it also has to be reasonable. Now I've fixed the top rate of fair tax …

ANDREW MARR:

(over) You're not going to change that?

ALISTAIR DARLING:

(over) … of 50 pence. But you know I think people will understand that as we come through a difficult period like this - and every other country has got similar problems - that you would expect the broadest shoulders to bear the greatest burden. And that was my view 12 months ago. It remains my view today.

ANDREW MARR:

Okay.

ALISTAIR DARLING:

That seems to me to be right and fair. You don't want to be … You know it wouldn't be right to be giving further tax breaks to people at the very top.

ANDREW MARR:

(over) Right, okay.

ALISTAIR DARLING:

That's why I think the inheritance tax proposal is just daft.

ANDREW MARR:

Let's turn to the row over RBS, and indeed other banks, about bonuses. Can I be clear, first of all - do you have the legal power, as it were, simply to pick up the phone and tell RBS management they cannot pay these bonuses?

ALISTAIR DARLING:

We do have a veto over the package, and they agreed to that you know when we did the final recapitalisation six weeks ago. And, look, we're not going to be held to ransom by people who believe that you can pay extraordinarily high bonuses without regard to what's going on. My position is clear: I'm not against bonuses in themselves. And, remember, a lot of bank employees don't actually get stratospheric salaries. But we already said to RBS, and indeed to the Lloyds Group where we have shareholdings, that bonuses for the executives will not be paid before 2012. Bonuses ought for the most part to be paid in terms of shares rather than cash. They should be capable of being clawed back. And indeed if you look at the cash bon…

ANDREW MARR:

(over) Sorry, can I just stop you on that?

ALISTAIR DARLING:

Yeah.

ANDREW MARR:

You said no bonuses for those people before 2012.

ALISTAIR DARLING:

(over) The executives. No, the …

ANDREW MARR:

(over) The executives. Not the investment guys?

ALISTAIR DARLING:

No, no. I mean …

ANDREW MARR:

Sorry, can I just …

ALISTAIR DARLING:

Yes, go on.

ANDREW MARR:

… push on this one more time because this stuff about 1.5 billion or a billion, whatever it might be, from RBS in bonuses - you can say as Chancellor of the Exchequer that will not happen?

ALISTAIR DARLING:

I can, I can … I, on behalf of the government, can say that we will or will not approve a particular package. But, as I said to you, I accept that in order to get RBS back onto a proper footing and off the government's books - and that must be one of the priorities - you've got to make sure you've got sufficient incentives where people are doing a good day's job. What you can't do though is have bonuses that are wholly unreasonable and are not related in any way to improved performance. Now it is a fine judgement, it is a balance, it's not a black and white world where you either pay no bonuses or you pay extraordinarily high bonuses. But you know I really think that …

ANDREW MARR:

(over) But these figures, I mean people are boiling with anger about this - as you know.

ALISTAIR DARLING:

RBS has not actually come to us with any proposals at all at the moment …

ANDREW MARR:

Right.

ALISTAIR DARLING:

… because they don't yet know what the end of year position is. But you know there's a general point to be made here. There's not a bank in the world that would be standing today if right across the world taxpayers hadn't put their hands into their pockets. We did it to keep the banking system going because you need to keep credit going. But these bonuses have to be reasonable and they have to be responsible, and you know I think everybody has to accept that.

ANDREW MARR:

Well of course RBS says that they're in this market. Everybody else is paying these massive bonuses around that part of the economy. What about a windfall tax to claw some of that money back?

ALISTAIR DARLING:

Well there's a couple of things here. Firstly, I'm not going to, despite your best endeavours …

ANDREW MARR:

(over) I'm only trying to be helpful, Chancellor.

ALISTAIR DARLING:

(over) Only trying to do your job. But remember the banks at the moment do pay fees for the guarantees we've given them. They do pay fees for the money that they get, so we are getting that money back. And of course when we sell the banks, I hope - you know it will take a few years - but I hope we'll be able to make sure we get all our money back. But in the meantime, we've got to make sure that we do two things, and again it's a balance here. We've got to make sure that all taxation is fair, but I also do want to make sure that it's properly supervised, properly regulated. The financial services industry employs a million people in this country - two thirds of them outside the South East of England - so it is a truly national industry …

ANDREW MARR:

Yes.

ALISTAIR DARLING:

… and I don't want to end up in a situation where you actually ….

ANDREW MARR:

(over) You destroy it.

ALISTAIR DARLING:

… damage an industry, which we need.

ANDREW MARR:

Nonetheless, I mean you know the Shadow Chancellor is in favour of a windfall tax, said he wasn't against it. It seems to be something that would be highly popular at least as part of your armoury if they …

ALISTAIR DARLING:

(over) Well I think he was hedging his bets because obviously he doesn't have any more idea of what I'm going to do on Wednesday than you do. (Marr laughs) But you know I'm very clear that you've got to, with all matters of tax - whether it's individuals, whether it's companies - you've got to be fair, you've got to be reasonable, but you also have to have an eye on what the long-term results of all this is going to be.

ANDREW MARR:

What about Mr Osborne's point that after signing an agreement saying that borrowing would be flowing again through the economies, the banks have failed to deliver on that?

ALISTAIR DARLING:

Well he's not quite right on that. What has been happening is that the banks have increased their lending. Not just the ones that we've got shareholdings in, but banks as a whole. At the same time though, a lot of businesses have been paying down the debts that they owe the banks - so if you look at the overall figure, it looks like there's actually less lending. In fact there has been more. Now the big challenge for us next year, as the economy starts to grow and businesses will need more money, is to make sure that we do get credit flowing, and that's something that I want to ensure. So yes, these agreements are there, but if you look at this year's figures it's rather masked by the fact that not just companies, actually a lot of individuals are paying down overdrafts and debts and so on. But on pricing and availability of credit, yes there is more work to be done and I want to make sure that we do that.

ANDREW MARR:

We'll hear more about that. Finally, David Cameron said it was spiteful, the attacks by the Prime Minister on his Eton background. Is class war where we're heading in British politics?

ALISTAIR DARLING:

No. Look, I judge someone not on what school they went to, but on the choices they make and the priorities they fix. And let's go back to the point that brought this about on inheritance tax. My view is that to hand over a large sum of money to 2% of the largest estates doesn't make any sense.

ANDREW MARR:

(over) Not the playing fields of Eton is the point.

ALISTAIR DARLING:

I don't care whether David Cameron went to Eton or not. What I do care about is the fact that I think consistently he is making the wrong calls, the wrong judgement, and that would present a serious risk to our country.

ANDREW MARR:

Alistair Darling, thank you very much indeed for joining us.

INTERVIEW ENDS




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