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NB: THIS TRANSCRIPT WAS TYPED FROM A TRANSCRIPTION UNIT RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT: BECAUSE OF THE POSSIBILITY OF MIS-HEARING AND THE DIFFICULTY, IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS, THE BBC CANNOT VOUCH FOR ITS ACCURACY

PANORAMA

Brown's Miracle Economy

STEPHANIE FLANDERS: Tony Blair claims Gordon Brown is the best chancellor we've ever had. The man who called an end to boom and bust.

GORDON BROWN: There will be no unsustainable dashes for growth, no out of control booms, no risk taking with inflation, no quick fixes.

FLANDERS: But now the critics say Gordon Brown's luck is about to turn.

KEN CLARKE: The 12 years we share of growth and low inflation is now at more risk than it's ever been and Gordon is in denial about it.

FLANDERS: What's the reality? I decided to travel the country to find the truth about Brown's Britain. We've had the longest expansion in modern British history and in terms of living standards we've gone from the bottom of the league of big European countries right to the top. It's impressive, but in a few years time, will we still see a miracle or a spending binge that sooner or later had to run dry. Tonight we ask, is Gordon Brown's miracle economy built to last. The first stop in my journey is a place where everything seems to have gone just as the Chancellor hoped. You could call it a mini miracle.

Stephanie Flanders

If you asked Gordon Brown to pick a model for the kind of British economy he was trying to build back in 1997 he might well pick a rather cool car now being built in the outskirts of Oxford. The car in question is built in Cowley. It's a true British brand which has risen out of the ashes to be the runaway success of the past few years - the Mini Cooper. The twist is that this time it's not an Italian job, or British, it's German. When BMW started out, they were aiming at making 100,000 cars a year, instead they've been edging towards 200,000 since year one. Nearly one in six cars that BMW sold worldwide last year was a mini. Cowley used to be known for what it didn't do - not what it did.

All those in favour of that resolution would you please show.

(all hands raised)

[cheers]

FLANDERS: In 1969 it averaged a staggering two strikes a day! Those days are gone. Gordon Brown would like what the Germans have done with the place because they've managed three things that he always said a new British economy would need. They're exporting more. Nearly three quarters of these cars go overseas. They've invested hundreds of millions of pounds here and they're about to invest more. And best of all they're raising productivity, making more cars with the same number of people. When they started the new model, each worker was producing 36 cars a year - now it's 45.

Paul Chantry, Deputy Managing Director, BMW Oxford

In the past the British motor industry was almost developed from a group of garage mechanics and they were very practical, pragmatic engineers, and the level of technical innovation and excellence, just the level of skill and education that you find in BMW is totally different. So BMW has transformed manufacturing here at Oxford.

FLANDERS: Cowley is not alone. Last year we exported more cars than in any year since the early 1970s and several foreign owned car plants in Britain are now among the most productive in the world. It's an impressive story, certainly not one you would have predicted 10 or 15 years ago. But unfortunately for Gordon Brown, not really typical of the British economy we have today. Ken Clarke became Chancellor in 1993, not long after this record breaking period of growth began. He spent much of his campaign for the Tory leadership saying how much better his numbers were than Gordon Brown's.

Ken Clarke MP, Chancellor of the Exchequer 1993-97:

It's very good that the Mini Cooper is doing so well but manufacturing generally has lost about a million jobs since Gordon took over.

FLANDERS: But obviously from the 80s onwards we lost about 2 million manufacturing jobs. Are you actually saying that if you'd been in power you would have reversed the decline of British manufacturing?

CLARKE: Manufacturing employment had been pretty stable for the 4-5 years before he took over, and since that time manufacturing employment's gone off a cliff, and there's always going to be some drift from manufacturing to services in a modern economy, but the fact is it's accelerated and we've lost some rather good bits of our manufacturing base.

FLANDERS: It's true, manufacturing has continued to shrink under Labour. Now services have grown and we're exporting more of them. Tourism, for example, counts as a service export. But whatever we're exporting, we're not exporting enough.

CLARKE: The gap between our exports and imports is now quite enormous, the biggest we've had since the 17th century! And the fact that we are importing so much more than we're exporting is a pretty crude but quite reasonable measure of our not being competitive as we used to be in the international market place.

FLANDERS: Since the late 1990s our imports have grown twice as fast as our exports. As a result, the trade gap - the gap between our exports and our imports - has worsened nearly every year since Labour took office in 1997. And there's more disappointment for Gordon Brown, the difference between what our workers produce per hour and other countries' workers produce - the dreaded 'productivity gap'.

GORDON BROWN: [speaking in the House] We are putting in place a strategy to tackle a fundamental long-term economic weakness. The 40% productivity gap with our most successful competitors.

FLANDERS: That was in 1998, give or take a few percentage points it could have been yesterday. We have finally caught up with Germany in productivity terms, but against the Americans, against the French, we've made no progress at all since 1997. Labour prefer other measures where the story is a bit brighter, but we do need to raise productivity because it's one of the main ways we can get richer. How? Well back in 1997 the new Chancellor thought a big part of the answer would be higher investment. And if Gordon Brown thought that, Ed Ball probably helped him come to that conclusion. He was by Brown's side every step of the way until becoming an MP last May. Now he's known as the Chancellor's representative on earth.

Ed Balls MP, Former Chief Economic Adviser to the Treasury

There is an ability for people to plan ahead, invest for the future, which we've not seen in the last 20-30 years which was impossible to do when you were fearing always we were about to go back to recession, back to inflation. I think we've put those days behind us and it's a huge opportunity for us.

FLANDERS: The government preferred to measure it in real terms, but in nominal or cash terms investment has fallen under Labour. From 12½ % of national income to 9½ % last year, the lowest since these records began in 1965.

BALLS: Investment is up compared to 1997, up by about 30%. There's more investment happening, there's more public investment happening, there's more private investment happening as well, so it's not true that investment is the lowest in..

FLANDERS: As a share of the economy in nominal terms, it's much lower than America and it's lower than it's been at any time since 1965.

BALLS: We need to do more to help companies to take advantage of that platform of stability and to invest for the long-term. What we want is more investment. I don't deny or doubt that. But the conditions are there for it.

FLANDERS: So where are we? Well, we've had a much more stable economy since the early 90s, but stability isn't the only thing Gordon Brown wanted. He also wanted to raise the underlying potential of the economy so we could all get richer faster. For that you need higher investment and big improvements in productivity. And as we've seen, the chancellor hasn't had much of either of those two pieces of a fast growing economy. So what have we got driving this miracle economy? We've got to get to Birmingham to find out. Because the more I think about it, the best model for the British economic miracle is Cowley, even though Gordon Brown might want it otherwise.

BROWN: [speaking in the House] I believe that together, working together, we can unleash the full potential of the British people to lead economically in Europe and in the world in the 21st century.

FLANDERS: We've shown our potential alright but not on the investing and producing side, more in our world beating capacity to shop. Take the Birmingham Bullring. The Bullring Shopping Centre was state of the art in 1964, but the next 35 years of the retail revolution rather past it by. It was a grubby white elephant. Then 5 years ago the council and some developers decided to rip it up and start again, and Birmingham got a brand new half a billion pound temple for the god of shopping. I've come to meet one of the people behind the reinvention of the Bullring.

Sir Albert, good to meet you. Shall we see your great project?

BORE: Yes.

FLANDERS: They say more people came here in the first year of opening than to any other retail development in Europe.

BORE: The numbers are mind-blowing. To have three quarters of a million people coming through the Bullring on a weekly basis is truly a great, great success.

FLANDERS: Some people worry about Britain becoming a nation of shopaholics. Sir Albert Bore isn't one of them.

Sir Albert Bore, Leader of Labour Group, Birmingham City Council

People may be spending more on leisure activities than they were ten years ago, but that's because lifestyles have changed and we shouldn't decry that. We need to take advantage of that and use that change in order to build city centres such as that here in Birmingham.

FLANDERS: Spending time here it's difficult to believe that the retail sector is in trouble, but recently there has been a sharp retail slowdown. If that continues, the country is going to feel very different in the next few years than it has, because higher spending has been such a big factor keeping the recovery going.

We like spending and it's always the lion's share of the economy. What's been a bit different about the last few years is a lot of that new spending hasn't come from people earning more so much as them just saving less. When Labour came in, households were saving just over 9% of their income. Last year they saved less than half that, just over 4%. In Birmingham I met Darren and Paula Johnson and their 6 month old daughter Francesca. He's a manager at a prison, she's a manager at a care home. They're not big savers.

Have you been mainly spending your money rather than saving it the last few years?

Paula and Darren Johnson

DARREN: I think most people spend what they get, don't they, but yeah, I mean Paula and I are both in a reasonably new relationship so obviously we've been enjoying ourselves, going out and spending to the full, and I think it's honest to say that what you earn you spend, and the saving aspect of it will come a little bit lager in life.

FLANDERS: Now what do you think people's attitude is to debt and spending now relative to ten years ago?

PAULA: Basically people want to go out and enjoy themselves, whether they get into debt or not. I think it's live life to the full. You don't know how long you're going to be here.

FLANDERS: Like most of us, the Johnson's have not only saved less for the past few years, they've also built up debt. They've got a mortgage of £95,000. And why not when interest rates are low, borrowing is cheap and a rising house market is boosting their wealth.

DARREN: I know in the back of my mind that the equity has been building up in the house and so as the years go on you can see that the equity is building up. The good thing is that you know that if you wanted to take additional money out you can go to the mortgage company and say look, I've got X amount of equity in the property and I'd like to take a loan out on it.

FLANDERS: But what about when interest rates rise as they did last year and the housing market starts looking a bit shaky, like it does today.

DARREN: One of the things about the interest rates going up, it does make people start to wonder.. you know.. if they can afford their mortgage and everything else.

Ken Clarke MP Chancellor of the Exchequer 1993-97

There comes a point when you have to stop building up the debt. I believe that's what's happening, it's happening now, and the result is you're seeing marked falls in consumer spending and something else which is not really Gordon's fault, that's probably going to be made even more marked by the sudden increase in oil prices and petrol prices, people are going to have less to spend over the next few years than they've grown used to, and they're going to wean themselves off debt because there's a limit to what any single household can pile up in debts on their head.

Ed Balls MP, Former Chief Economic Adviser to the Treasury

Part of the reason why people have been not saving at very high levels is because they're confident that there isn't going to be a big bout of inflation and there isn't going to be a big period of instability, and that therefore they can take a sensible medium term view. What we need to avoid is the kind of jarring swings from a very low savings ratio to a very high one, because people feared that the economy was about to go into recession or inflation was out of control.

FLANDERS: Some day soon we might all start thinking we have to save more. At the very least we might think we can't carry on saving less each year than we did the year before. I think it would be a good thing if we all decided to save more. I mean the government is always going on about we need to save more for our pensions, but they don't want us to start saving more in a hurry, because so much in the economy is dependent on all of us borrowing and spending as much as we have before. In the past our spending and borrowing spree would have ended a long time ago. I spending would have pushed up inflation and interest rates would have hit the roof as a result. So far we've had boom but no bust. I'm heading to Nottingham in search of clues to why this unusual mix of high spending and low inflation has already lasted so much longer than the Chancellor's critics expected.

1997

BROWN: I want to assure you that under this government there will be no unsustainable dashes for growth, no out of control booms, no risk taking with inflation, no quick fixes and no short-term manipulation of the economy for political ends. Our commitment is to the long-term.

FLANDERS: Interest rates usually get cranked up to keep the lid on inflation. But until recently inflation had hardly raised its head. Why? There's a big clue at what used to be Nottingham's biggest firm. At one point over 10,000 people worked at Raleigh but it stopped making bikes three years ago and moved out of its sprawling factory in the middle of town. Now the company has been staging a bit of a revival - with the chopper. Raleigh's managing director took me for a spin. The chopper is a new take on a 70s classic and the punters, young and old, still love it. But the factory has been replaced by a warehouse because all Raleigh's bikes are now imported from cheap foreign producers.

GOULDTHORP: One of our lowest competitors at the moment is bringing in bikes from India and they're doing a full spec mountain bike for 40 quid (laugh) and it's just.. you know.. how can they do that? I mean the thing will probably fall apart in about a minute flat but it's not the point really, is it. Some people would be put off by that but it sets an expectation that bikes can be bought for that kind of value.

FLANDERS: What difference has it made the price of a bike, the entry of all these new competitors from Asia?

Mark Gouldthorp, Managing Director, Raleigh UK

Probably the single best indicator of this is the retail price of bikes, and they've pretty much stayed still for the last 20 years. The kind of specification of a bike that Raleigh is doing now for say £200 retail would have been £500 only five years ago, and that's been.. you know.. since heavy competition, Far East sourcing, fantastic economies to be derived both in terms of labour and material.

FLANDERS: Wheels are all they do now and not many of them. It's a reminder that the upside for all of us of the decline in British manufacturing is cheaper foreign goods and lower inflation for Brown's miracle economy. Trouble is, whether it's bikes or anything else, outsourcing to Asia is something you can only do once, and if there's less scope for that in the future, there's more chance that imports will push up prices rather than pull them down.

GOULDTHORP: When China suffers a cold in terms of steel prices because they're consuming so much steel for the construction industry in China, that has ramifications for industries like the bike industry that relies so much on China for raw materials. When China's booming building trade is in full swing, then we pay more for our bike frames.

FLANDERS: The rising price of oil and other imports has helped to push up inflation this year to its highest level in nearly a decade, and in Brown's economy it's the Bank of England, not the Treasury that sets interest rates. It has to decide whether that rise is a blip or a trend. The Bank doesn't just use official statistics to make its verdict. They use intelligence from their secret agents on the ground. I've arranged to meet one. He goes by the name of Chris Brown.

CHRIS BROWN: I mean it is very much intelligence gathering and I usually have to start by telling people I've got nothing to do with MI5 because of the historical title of 'agent'.

FLANDERS: My name is Brown... Chris Brown.

CHRIS BROWN: That's right. Yeah.

FLANDERS: We've come to one of his prime sources of intel, an American style shopping mall on the outskirts of town, like the MD at Raleigh, he thinks there could be a limit to the miraculous effect on inflation of cheap Asian imports.

Chris Brown, Bank of England Agent

People tell me they'll move to the Far East and they'll get 30-40% price reductions, and what we're beginning to pick up a little bit more now is that when businesses are going back, they may be getting a price reduction but it wont be 30-40 percent, and at the same time they've seen an increase in their logistics costs with the price of oil etc, and therefore it's becoming more costly to transport the product in.

FLANDERS: He's picking up a sharp slowdown at this retail centre as well. But there are those at the bank who think that might have been just what the economy needed.

CHRIS BROWN: Maybe the capacity in the economy was reaching.. you know.. pretty well near the top, and if you go over the top then obviously that's when you run the very high risk that inflation will kick in.

FLANDERS: We don't know what's going to happen but the bank of England does seem to think we're going to have less room for spending booms in future than we did. They're also seeing more inflation than there was before, all of which makes you wonder what else of the miracle economy do we have left?

GORDON BROWN: I believe that the British people needs a government that is as enterprising and as dynamic as many of its people undoubtedly are.

FLANDERS: If you strip away the low prices, the booming house market and the heavy spending by all of us, if you take away those big props for the economy, what does Gordon Brown's miracle look like? I decided to look north for the answer, because the other leg of the stool, the big piece of the recovery of the past few years that the Chancellor can take direct credit for is the dramatic growth in public spending. No other big country has had anything like the expansion in government that we've had in the UK the last four or five years, in fact it's accounted for about a third of all of our economic growth, and one of the regions that's benefited most from that public support is the northeast. By one estimate nearly 60% of the local economy here is public sector, that's similar to Hungary before the Wall came down. Today, of course, the share in Hungary is quite a bit lower.

The no nonsense Breakfast Show, Mike Parr on BBC Radio Newcastle.

MIKE PARR: Stephanie, good morning to you.

FLANDERS: Good morning.

PARR: So who are you wanting to hear from?

FLANDERS: Well I want to hear from anyone who has a view about how the economy has been under Labour. There are plenty up here who like what Gordon Brown's generous public spending plans have done for people in the northeast.

PARR: This is Jim the trucker calling from Durham. Morning Jim.

JIM: Good morning. Well my own opinion, I feel better off, we've been steady work. We've been doing loads of schools, hospitals, we've been doing all sorts in the construction industry. It's nice and steady work.

FLANDERS: I'd be interested to hear what people think. Does it matter if they have lots of people working for government, does it matter where your pay cheque comes from? Even in this Labour stronghold there are dissidents who worry about depending so much on government jobs.

CAROLE: I think the best thing we can be doing is looking for very, very small businesses that we have somewhere near when everything else does collapse, including all the government jobs, when suddenly it all collapses at least we'll have people who can do things and prepare things for us locally so we can at least survive.

FLANDERS: David Frost is the Director General of the British Chambers of Commerce. He's a local boy gone south who thinks our manufacturing decline has gone too far.

DAVID FROST: We know that we've lost 300,000 jobs over the last two years, we know it now makes up less than 15% of output. The concern is that what has actually been holding their jobs up¿ job creation up over the last few years. There's been this huge growth in the public sector.

FLANDERS: In the northeast the number of public sector jobs has grown by more than a fifth since 1997. The number of jobs in the private sector has fallen by about 2%.

David Frost, Director General, British Chambers of Commerce

Most northern regions, and I would also include Scotland in that, and what you are seeing is the economies essentially being supported by the public sector, and this huge increase in public expenditure cannot continue, and when it does start to slow down, then what we need to ensure is that we've got these productive sides of the economy both manufacturing and services that are going to be there to take up the slack and provide a real economic generator for the region.

FLANDERS: Do we have that now?

FROST: I think there are real concerns in many regions of the Midlands and the North as to whether we do.

FLANDERS: It does seem strange that the definitive New Labour Chancellor should have presided over an old-fashioned expansion of the state.

Was that really part of the New Labour plan to have such a big increase in the share of the state, especially in places like the northeast?

Ed Balls MP, Former Chief Economic Adviser to the Treasury

Well if you look across the northern economies generally, what you're actually seeing is an expansion of public and private sector employment and the reality isn't Hungary or Albania. I don't think people who live in the north would recognise that at all. What you actually see is a huge expansion of investment and new jobs.

FLANDERS: There's no dispute about the higher public investment and government jobs, the issue for private businesses here is the impact on the local economy. At this 100 year old components factory in South Shields, the grandson of the founder is actually a fan of Gordon Brown's. But Geoff Ford doesn't think the taxpayer's getting value for money from the government's many local development schemes.

Do you think there's been an underlying improvement in economic performance?

Geoff Ford, Chairman, Ford Component Manufacturing Ltd

I think it's limited. I think there's been an underlying desire but sometimes I don't see evidence that they know how to deliver. Because when I look down the support agencies, when I look round at the number of public sector employees, I'm amazed we aren't doing twice as well because the support is astonishing.

FLANDERS: He worries that high public spending is distorting the labour market, turning the old job for life culture of shipbuilding into the new job for life culture of the town hall. The local council has a workforce of more than 7,000.

FORD: Because the public sector and local government are able to offer such attractive packages, they are creaming off the best of the talent, and that therefore deprives the rest of the labour market, and I do believe that the significant growth in public sector employment actually stifles the entrepreneurial spirit because of it's different focus, there's no risk, there's no real risk, and there is a disincentive to stick your neck out.

FLANDERS: Love it or hate it, you'd have to say that a lot of the taxpayers' money pouring into this region has been spent on things people want. In this year alone the government has committed 220 million pounds to SureStart Support Services in the northeast for underprivileged children and parents. I cycled down the coast to Redcar, an old steel town where public money has kept a lot of people afloat. It's got four new SureStart centres since 2003. Two years ago, on the Lakes Estate there was no onsite child care at all. Now there's a SureStart, a workforce of 32 and a manager fluent in the language of government strategy objectives and support.

Vanessa Newlands, Manager, West Redcar, SureStart

We have health visitors, midwives, speech and language therapists, we have family support workers, we have a play development team, so it's a very direct and diverse range of staff. It is a massive investment but it's going to play long-term dividends for families because it's based in the heart of the community, services are collocated, we've got many different agencies working side by side. All are working to the same targets now, we've all got the same vision.

FLANDERS: And I guess you've been able to employ a lot of local people as well.

NEWLANDS: Yes we have, about half a dozen parents currently working in the programme, yes.

FLANDERS: For the parents who work here it's a two for one deal from the Treasury. There's the wage, and then if they can manage the paperwork, there's the top up from Gordon Brown's tax credits. In the past few months the weekly adviser from the Citizen's Advice Bureau has helped parents at this one SureStart claim an extra £25,000 from the Inland Revenue. Sue is a parent and newly trained care assistant. She's worked here for 2 ½ years. Tax credits have doubled her income.

What difference does that make in your case?

Sue Terry, West Redcar SureStart

Well I don't think I would have been able to take employment without the tax credit because I just wouldn't have had enough finances for myself, and it's enabled me to get back into employment and also the child tax credit element. The child care cost has helped me put my children into child care while I'm able to work.

FLANDERS: The government says it's committed to this kind of spending for the long term. In fact, it's rolling out the SureStart programme nationally from next year. By then, government spending is a share of the economy will be the highest it's been in a decade, since just after Ken Clarke became Chancellor as it happens.

Ken Clarke MP, Chancellor of the Exchequer 1993-97

The state is steadily taking more and more of the cake than the private sector which in the end has to create all the wealth to pay for it is taking an ever declining proportion, and meanwhile that's what maintains this disappointing performance but you have to change, it cannot go on without change unless we get into.. eventually into those good old fashioned British difficulties which we used to have on and off ever since the war. I still believe in no return to boom and bust myself.

FLANDERS: But the problem you've got, I guess, is the public now believe Gordon Brown when he says he'll look after the economy, they still don't believe you.

CLARKE: Well I don't think they'll carry on believing Gordon Brown, and I'm prepared to argue with members of the public who don't agree with me, that you're being too complacent.

FLANDERS: They're not all complacent in the northeast and, as in the rest of the country, there's a lively debate here about whether Gordon Brown's money has all been well spent. For everyone complaining about booming town halls there's someone else, at the SureStart in Redcar for example, who says he's done real good. But here's where everyone can agree. All of this new public spending has done a lot to prop up the economy in the last few years, and all of it, sooner or later, has to be paid for. The risk isn't a budget meltdown but like the rest of us, the government is going to have to slow down its spending and cut borrowing, otherwise Gordon Brown wont be able to stick to those rules for managing the taxpayers' money that he announced with such fanfare back in 1997.

1997

GORDON BROWN: There will be no more hiding behind obscure forecasts, or forecasting assumptions. We will not leave ourselves open to accusations of accounting tricks, dubious figures, or attempts at rigging the rules.

FLANDERS: We've all heard a lot about Gordon Brown's golden rule in the past 8 years. It's complicated, but basically it's said that over the course of the economic cycle he can only borrow to invest. This year he was looking close to breaking the rule, then the Treasury decided to change the start date of the cycle and -hey presto! The Chancellor had 12 billion pound more borrowing to play with than he had before. For this, the iron Chancellor got quite a lot of flak.

Do you think it's done any harm to his credibility, these stories about the changing of the rule, the fact that you suddenly sort of pulled 12 billion quid from behind the fridge?

Ed Balls MP, Former Chief Economic Adviser to the Treasury

Gordon Brown's credibility as Chancellor rests upon his record on inflation, on interest rates, on employment, on being able to release resources to invest in public services. I don't think the public thinks that Gordon Brown is playing games with the public finances.

CLARKE: Gordon's new dates for his cycle are so obviously a fiddle, they're so obviously political because he doesn't want to raise taxes again before he leaves office if he can possibly afford it, and he's in denial about the state of the public finances, and that's no way to work out when the cycle starts at all.

FLANDERS: The Chancellor disagrees with the experts about whether he will have to announce more tax rises to balance the books. But he agrees that he will have to borrow less and tax revenues will have to rise. That means the government will start taking more out of the economy and putting less back in, and the third big prop for growth since 2001 will start to fall away.

Gordon Brown will be here tomorrow lapping up this year's standing ovations at the Labour Conference. If things had gone differently in the past year or so it might have been his coronation as Leader. Instead, he's still the heir apparent, but the Chancellor is entering a period when his reputation for economic management could face its toughest test. The scope for new spending and borrowing, by us or by the government, is much more limited than it was, and so far, there isn't much evidence that the rest of the economy is ready to take up the slack. Inflation has been rising and growth is the slowest in more than a decade. Why only this weekend the Chancellor admitted he would have to downgrade his growth forecast for this year.

BALLS: There's no doubt that the combination of consumer spending and government spending helped us to continue to grow. That's actually why Britain didn't have a recession when other economies did.

FLANDERS: It can't carry on forever though.

BALLS: But what we need to see, as the global economy strengthens, and as the public spending rises slow down, we need to see our export industries and our manufacturing and our service sector industries expanding more and taking up more of the burden of sustaining growth in the economy.

FLANDERS: But isn't the lesson of the last six or nine months that there isn't anything to take up the gap?

BALLS: I look at this year and think given the globally difficult situation, and given the fact that we needed the consumer in Britain to slow down, what has been achieved this year by the Bank of England primarily, but supported by a wider economic policy, is actually a great achievement. It's unprecedented in the last 30 years.

CLARKE: I say he's not been a disaster as Chancellor, don't let me overstate my case, but he's not been a very good one, and I think when he becomes Prime Minister he'll find he's haunted by people looking at the economic difficulties of his successor and saying that Gordon handed on rather a bad legacy to the Chancellor of the Exchequer whoever that may be that he appointed.. that he appoints.

FLANDERS: Under Gordon Brown we've had a very stable economy - but a miracle economy? Well, we've had some good decisions at the start, but also quite a lot of luck, including an unusual world environment that let us spend and borrow without the normal constraints. Now some of the Chancellor's luck may be starting to run out, and the big question is where our growth is going to come from in the future, just as he enters what he hopes will be the final furlong in the race to No.10, we're all about to find out how much of the miracle economy Gordon Brown has left.

You can comment on tonight's programme on the Panorama website. Next week a right royal shambles. Panorama tells the inside story of the problems Charles and Camilla faced with the church, the press and the law when they finally decided to tie the knot. CREDITS

Reporter Stephanie Flanders

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Post Production Co-ordinator Martha O'Sullivan

Production Manager Ginny Williams

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Assistant Producers Patrick Barrie John Thynne

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Editor Mike Robinson

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