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Monday, 25 November, 2002, 15:48 GMT
Dark economic clouds? You asked the CBI director-general

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    The global economy is in trouble and the CBI, the UK's main employers' organisation, warns that the UK will not escape the downturn.

    But what can be done to avoid economic trouble? Less red tape? Lower business taxes? Joining the euro - or staying out of it?

    Next week, the CBI will discuss some of these issues at its annual conference in Manchester.

    Should business bear part of the burden to pay for better public services?
    And how bad are things really for the UK economy?

    CBI boss Digby Jones answered your questions in an interactive forum.



    Transcript

    Newshost:
    Hello and welcome to this BBC interactive forum. I'm Andrew Simmonds. Is Britain heading for industrial gloom? The Confederation of British Industry has already warned that Britain is becoming a less friendly place to do with business, with higher taxation. A bigger worry for both the government and the CBI is the state of the world economy and a third of it will drag the UK into a recession. And then there's the firefighters, as I speak, the second strike is just starting. Here to answer your questions is Digby Jones, director general of the CBI.

    Digby, thanks very much for joining us.

    Digby Jones:
    Good morning.

    Newshost:
    Can we first of all deal, before we get into these questions, with this issue of the firefighters and what implications might actually result from it in inflationary pay increases?

    Digby Jones:
    Well we are very supportive of the government standing firm because the government's elected to govern for 59 million people in this country, not one sector, whichever sector that may be - including business, including anybody - and especially including one group, the public sector employees, who at the end of the day have got to reform. And all of this money, taxpayers' money, that's going into public services is right - it needs more money - but they've got to actually deliver for the customer with reform of public services. Now there's many an employee, often unionised, in many businesses and in industries in Britain who've had to restructure and had to reform their working practices with no pay rise just to keep the jobs. And here we have a sector that's saying they don't even want to reform even if they're being paid more money to do so. And if they actually take out more money without reform or if they take out too much money full stop we're going to get inflation, which has been the British disease for 60 years and isn't anymore, and we're going to therefore get unemployment. And it is so important that this government stands firm and if that means, sadly, strikes then so be it. But this government, very clearly, to show to the world, to show to all different trade unions, to show to the voters that they're in charge - they have to stand firm.

    Newshost:
    So you're on the side of the government?

    Digby Jones:
    Very much so and we are very supportive of their hard stance yes.

    Newshost:
    But in an interview this morning, in a newspaper interview, you're saying that you've effectively become the official opposition to the government - this is over the higher taxation and ...

    Digby Jones:
    Yes. What I was saying in that article was that it is a shame in Britain at the moment that we don't have the opposition parties picking up the business agenda. And the CBI is passionately apolitical, we would never be party political at all. I have members of mine all over the country from all different political parties and that's very refreshing. But from a putting the alternative viewpoint we don't have, in the Liberal Democrats, in the Tories and in the national parties in the Celtic nations, we don't have them putting business very high up their agendas. And someone has got to take to the government the argument that business, which last year paid 108 billion in tax, and at the end of the day that buys a lot of schools and hospitals. So if we're going to stay in Britain and we're going to create jobs in Britain someone has got to say - government, you've got to create an environment where this can happen. And if it's regulation, if it's taxation, if it's labour market flexibility, whatever it is, I want to be putting those cases to government. Now this means that when the government's doing something that's good for wealth creation and job creation in Britain and it's done really well in delivering low unemployment, low inflation, low interest rates and some sustainable growth we'll say well done government, we'll support the government against the firefighters to make sure that all of Britain gets a stable economy. But then when they're doing things which don't help wealth creation and job creation in Britain - higher taxation, less labour market flexibility - someone's got to put the alternative view and we don't have opposition political parties doing it at the moment. So that's why I'm saying it, but it's not a party political point, it wouldn't be about being Tories or Liberal or anything, it's more about politics with a small p.

    Newshost:
    Okay, well let's get straight into the e-mails. John from Maidenhead has e-mailed to say: "I run a small service business supplying larger local companies, business is very slow at the moment, all of our customers have slashed budgets and cut staff. However, house prices are still rising, consumer spending is still strong - am I missing something here or are we heading for a major economic problem next year?"

    Digby Jones:
    There's two completely distinct sides to the question: one is, are we heading for a major economic problem next year and the global economy has slowed down, our two biggest export markets to the country are America and Germany, I don't think America's heading into double dip recession, I think America's bobbling along the bottom and is by and large going to start pulling itself out. Germany is having serious economic problems and it's got high unemployment, it hasn't restructured anything and it's actually not got a system that allows reform quickly and it's a big export market for Britain. So we do need a successful Germany if Britain is going to get those exports working. Now from a global economic point of view, yes there are real issues in Britain, as one of the major trading nations on Earth is going to be affected when that happens, thank heavens we do have that macroeconomic stability which means we can weather it a bit better than we've probably weathered it in past downturns - I think in 1991 and 1981. Back at the ranch though and the question is very well put in saying - oh but hang about if this is all going wrong why are houses going up in value and why are people spending in the high street?

    Newshost:
    Well that's what we want to move on to.

    Digby Jones:
    And one of the reasons for that of course is that there's a skill shortage in Britain, so if you have a skill you're in work. So people are actually earning money, interest rates are low, so therefore money is cheap and whether it's on your credit card or whether it's to buy a mortgage on a house it's cheap and therefore people can and do use that feeling of goodwill to go out and buy. Now in one way we want them to be in the high street spending because it stimulates the economy and it gets everybody earning and being in work. On the other hand, and at the end of the question he says - but are we heading for some real problems next year? - a housing boom of this rate of increase does two things that isn't clever: one is it will end in tears if it doesn't cool off because bubbles do and secondly, is that it is one of the reasons why the Bank of England, who's the independent monetary policy committee, the people who set interest rates in Britain, one of the reasons they're not bringing interest rates down a bit more - and they're low but they could be lower and it would help manufacturing exporters if they were lower, it would help everybody in many ways - but one of the reasons is because there's inflation in the housing market they drop the interest rates people will go out and borrow even more money and they don't want to fuel it even more. So we need that to come off the top. Do I think Britain's heading for recession? I don't and I actually think that we are one of those nations, very few of them at the moment, that have got a good strong economy - I don't think we're going to deliver enormous growth, probably about 1.7, 1.8 per cent growth in GDP but Germany, at the moment, is negative, France is about 0.1, even America on annualised basis is around 1, 2 per cent. Britain's doing very well in that respect but it's very different if you're owning a house and seeing it going up in value than if you're an unskilled person somewhere where actually you're finding it difficult to get work - there is a dichotomy in the economy.

    Newshost:
    Well you dealt very well there with our main housing questions but there's this quick one from Ian in Nottingham: "Why can't we reduce interest rates but increase some form of house owner tax? This would break the relationship between industrial and domestic and financial issues."

    Digby Jones:
    I think actually that's an excellent point because one thing that's coming through a lot with the taxing policy of this government is that they tend to leave the voting individual alone. So if you look at taxes they've gone up by something in the region of 30 billion extra on business in the past five years, and we think over the cycle, over a seven year cycle, we actually think they're going to go up 47 billion more, whereas the guy in the street will think this government hasn't put up taxes - they've only put 1 per cent on his national insurance contributions to take effect next April - that's the first rise in the individual tax since this government came to power. If you look at energy taxes, climate change levy hits manufacturers hard, the big issues with energy and may I say also who do waste energy are you and me, the individual in his home and the way he goes about his life, drives his car, now they don't hit them. And there is this push towards taxing business and wealth creation but not the individual, mainly because individuals vote of course and businesses don't. So it's much the same with house ownership, that's being left alone in many ways - stamp duty's gone up of course but again that's probably at the top of the market where it's really felt. And yes if they split up home ownership from business property ownership and started hurting the one more than the other it is a way that you would, I hope, take the top off the market - it would be unpopular, however, and this government likes being popular.

    Newshost:
    Dylan Gibbons from Birmingham: "In your home city, Digby, major car manufacturers have complained about the high value of the pound and said they want to join the euro. What's the CBI doing on this?"

    Digby Jones:
    I actually don't think we have a high value pound. If you look at the relationship between the pound and the dollar over the last four or five years it's changed a little bit lately but by and large that's been pretty stable. And it's not about a high valued pound, it's about a low valued euro. And when the car manufacturers of Britain, who are hugely successful actually - do you know we have seven different car makers make cars in Britain, we're making and selling something like two million a year, we're nearly at record levels ever and at the same time we are making them, what I would call, at the value added end of the market - the Jaguars, the Range Rovers - we're doing it where the value added end comes in, which is good because that's where people actually get sustainable jobs out of that. The motor sport manufacturing industry - 50,000 jobs, two billion into the economy - and you don't get Formula One cars or rally cars that run round the world that aren't built in Britain - we're very good at that. In fact I like telling everybody that the Mercedes engine, it's in the Formula One Maclaren, is made in Woking, which is always good stuff. But I was just going to say we have a successful motor industry but a lot of what they sell goes to Europe and in euroland, of course, if you're paying your wages and buying your stuff in sterling and you're selling, making your profit, in euros - it wouldn't matter if it's euros, another currency - then you have the exchange rate risk and then people are saying but I can't tell you three years out whether I'm going to make any money because I don't know what the pound's going to be against the euro. Now what we have to do is find a way in which we can eliminate that risk and having the same currency is one of those ways. Where the CBI is on this is we are a divided church and we have members who say we want to be in because it eliminates that risk - the guy from Birmingham - and god bless him, in God's own region as I often say, they would say being in the euro's the way forward. I have members who'd say hell will freeze over before we go near it. And I have a lot of members in the middle who are bit like mostly Britain are saying well I don't really know.

    Newshost:
    But where do you stand on the euro because things have gone fairly quiet from ....?

    Digby Jones:
    Well yes because we have a democratically elected government who's actually saying well we haven't made up our mind yet whether to go to the country on this issue and what I want to do is I want the business voice to say - this is what we think - in other words have a big survey, a detailed survey, ask our membership - 3,000 companies in membership and 200 trade associations which gives about another quarter of a million businesses - and I want to say to all of them what do you make, where do you make it, how many people do you employ, where do you sell it and what do you think and what rate would you go in at if you went in and what other conditions would you put on it? So in other words do you want some reform in Europe, a common agricultural policy, transparency at the European Central Bank, reform in the energy market. Lot's of things that need to be reformed in Europe. Is that a condition of wanting to go in? Ask all that in a very detailed survey but do it when it's timely. If I do it now then it's going to go off the boil by the time the government get round to it and it won't be timely. The other thing it'll do, by the way, is divide my organisation because we are divided on the issue. If, on the other hand, I do it when I know I should do it which is after the government has said democratically we've decided we're going to go to the nation and ask them, I know that's the right time to do it but it means keeping the powder dry now. And therefore I want to bring informed debate rather than gung ho stuff to the argument. To do that I'll hang on. It does mean that the CBI is more quiet about the issue than it's been - five years ago but I think it's right to help inform the debate at the right time and also ...

    Newshost:
    You almost sound like Tony Blair here.

    Digby Jones:
    But also the other thing is I have got members on both sides and I want to make a difference on tax and regulation and transport and everything else, I don't want to divide my party, my group of people, when I don't have to.

    Newshost:
    Steve Perry says: "Recently Sir Nigel Rudd, chairman of the CBI's Boardroom Issue Group, stated that recent corporate scandal in the US has undermined confidence in the UK economy. Does this mean that the CBI will be actively discouraging its members from taking huge salary increases and negotiating themselves massive severance packages?" Big issue, this one.

    Digby Jones:
    A very big issue and a very serious one. The first thing to say is Enron, Worldcom - these are American problems, these are not British problems. And as far as companies who are at it - we do not have the issues that America have and I'm not going to have it that we actually are faced with those enormous criminality issues in corporate life. We had all our big scandals - Maxwell, Polypeck, BCCI - they all happened in the early '90s and a lot of corporate governance was brought into British business life during the '90s. Now I'm not saying there's not a budding Kenny Lay or Bernie Ebbers sitting somewhere in British business - I don't know, you don't know. What I do know is we've got more checks and balances and more alarm bells that can ring more early than America had and therefore I think there's a better chance that we can flush them out. And it's not right that the Enron's of this world are happening in Britain and what Nigel was saying, and he's right, is but the average guy on the street in Britain will say - Oh look what's happened at Enron, all business is at it everywhere. And we therefore, no matter how unfair that might be, we've got to deal with it because it's a perception. So that's what I would call the criminality side of it.

    The other side, which fuels that sort of are you at it idea but is a completely different question and to me it's a very worrying point and that is, here am I sitting on this programme saying firefighters you should actually understand you can't get more and then one day, by the way, presumably it'll be the nurses or the teachers or the policemen, all of whom are damn good hard working people who need more money, and then you see chief executives of major companies saying - so many million pounds isn't enough what are you going to do for me? And no matter how much someone might deserve it, it is important that the leaders of business understand the perception and the poor impression they cause. I'm not going to comment on a specific individual, whether such and such in a certain company deserves it or doesn't, the CBI have so many members if we started commenting on individuals we'd never stop. But what I am going to say is I think the leaders of business have got to be minded to the fact that if they want to be liked more, if they want to have themselves respected and felt worthy of more one of the things they've got to do is be understanding about the sensitivity of big pay awards when they are actually saying to other groups of people - don't hurt the economy with this.

    Newshost:
    Let me just move on here, we've just had an e-mail in from Malcolm Halsworth and it picks up this point about flexibility and modernisation linked to pay increases. He wants to know quite simply: "How flexible should the workforce be?"

    Digby Jones:
    Britain has the most flexible labour market in Europe. It's more difficult than it's been to move people, change their working practices, let them go, recruit them on temporary bases, it's more difficult than it's been but it's still easier to do than in any other country in Europe. We have the lowest unemployment in the whole of Europe. The next country where it's quite easy to do it and more easy than other places is Holland and they have the second lowest unemployment in Europe. And the third easiest place to do it is Ireland and they have the third lowest unemployment in Europe. Do you get the connection? If you have a flexible labour market employers tend to employ more people, people tend to get trained better, people tend to earn more money actually.

    Now if you look at the countries where it's really difficult to ask people to leave and it's really difficult to get them to change - France and Germany are the two big examples. They've got unemployment at 9.8 per cent, we've got it at 3 per cent. And at the end of the day you have overseas investors who say about France, for instance, my members do it because my members invest in Britain, they invest in France, they invest in Germany and everywhere else, they say - we can't let people go in France but we're never going to create another job there and we'll let the people who are there whither on the vine and we're going to take our investment to other countries. And what's so important is that we get employers to skill and train their people better, so the biggest protection anybody can have in work isn't a raft of legislation it's actually they're so well skilled an employer wouldn't dare let them go because in this Western world of ours we haven't got enough skilled people.

    Newshost:
    Well let's move to a subject close to your heart now and that's taxation. Nick Hipkin from London says: "If you think many businesses are suffering with government tax increases do you not think you should work harder to damp down the use of tax havens by big companies? This tax avoidance is draining the country of billions of pounds each year and unfairly puts the tax burden on companies and individuals lower down the scale?"

    Digby Jones:
    As far as tax burden on individuals lower down the scale, actually personal taxation in Britain hasn't changed for many years, if anything it's got lighter. And it's that point I was saying about government is tending to hurt business more than individuals on taxation. As far as tax avoidance, using tax havens, is concerned, it actually is at the margin. It makes the headlines and it doesn't make a good story for business either, and I accept that, but it actually is at the margin. And not a lot of that goes on. What does happen, a lot, is the way that multinational companies - who I heard a lovely word from the other day, transnational company but you and I would see it as a multinational - and they're big job creators around the world, of course if they've got bases in 20 countries they're gong to enable the profits to be arising and then accountable in countries with lower tax areas than others. And I don't want to see harmonisation, I want to use a country that's got a low tax regime as an impetus to my chancellor to say what you're going to do about this because actually it's the old adage - politically it might be unacceptable but you drop tax rates and actually usually take home more tax.

    Newshost:
    Well let's move here because now you're talking about ...

    Digby Jones:
    It stimulates people not moving around.

    Newshost:
    You're talking about the Chancellor here, Paul Langston from Aylesbury: "We are coming up to next week's pre-budget report, as if the government didn't have enough problems at the moment, where the Chancellor's probably going to have to warn that his budget deficit is growing faster than expected. Should he raise taxes to tackle the problem or continue to borrow more money?"

    Digby Jones:
    He's got a golden rule which is you borrow more money to invest, not to pay, what I call, current account. So in other words a good example would be: you borrow it to go and build a hospital, you don't borrow it to give a pay rise to firefighters. And it is true that he's got a diminishing tax receipt because he's got to slow down the economy - so the profits are less, so that means that there's less tax paid. And he's got this commitment to public expenditure which is very important. And that does mean he's got to square the circle and there's a gap.

    Now he can do one of two things - well three things - he could actually cut public expenditure but he won't. By the way he could concentrate more hard on getting better value for money out of the money he's spending by reforming public services but nevertheless he won't cut the money he's putting in. So he either taxes more or he borrows more - as the guy says. No problem. And if the borrowing is short term and over a cycle equalises out - in other words when the economy comes back the borrowing is repaid out of the additional tax - we have no problem in that. If on the other hand he's going to borrow merely to pay a lot of people more money that the country can't afford then what I would say is if you're going to tax more Gordon don't just come after business again, have the courage to say to the people of this country, who vote for you, I'm sorry but I've got to put it up. Now that's his call, political unpopular, but that's his call. But if he comes to business again one more time - I mean he's taken a lot of money out of business by stealth over the last five years - and if he does it one more time a lot of companies are going to say actually we're no longer the competitive tax place we used to be I think I'll go and make this stuff in India and then you don't just not get the corporation tax that's being paid by the company, you don't get the tax being paid by the people who are out of work.

    Newshost:
    A lot of people have said that the honeymoon's over between business and New Labour, we do sense a shift here, do you really feel the government's listening as much as it used to?

    Digby Jones:
    Well you see I've done this job for three years so far, I'll do it for five years and then move on, so I have a five year opportunity to try and make a difference and I never thought of it as being a cosy relationship. I mean a lot of people have talked about my predecessors and things and I don't go there, I just look at it as I am and I have an incredibly good workmanlike relationship with the people who make the rules in this country where I agree with them sometimes and I don't others and it's always been the same. And by the way I'm glad they listen to us, they're a very consultative government - they listen a lot - and they listen to other lobby groups - I mean the unions are a lobby group and they listen to them - they listen to the voluntary sector, they listen to other NGOs - and rightly that's what a democracy's about. And sometimes Gordon Brown and I don't agree and sometimes we do agree. I'm the first to say, for instance, I'm delighted in the way he's trying to put more money into these deprived areas and saying come on business you do your bit, I'll do my bit and let's get some wealth creation in some deprived areas - I think it's a fantastic idea. But on the other hand I do believe he's making it more difficult to do business in Britain and that concerns me. He'll say - well I've got to raise this money, I've got to respond to my mandate in my manifesto about labour markets. I'll say - Gordon, I understand that's called democracy but just be aware of what it's doing to the competitiveness of Britain.

    Newshost:
    Keith Blackburn from Chelmsford worries that: "In taking such a strongly political line with the British government and its policies aren't you, Digby Jones, following your own political views rather than representing the needs of the CBI members?"

    Digby Jones:
    My political views are my affair and I've never told a soul how I vote and I certainly won't tell a soul how I vote in this job. And there's something else which is that I don't think I serve my members well at all if I ever flavour what I do with a personally held political view and I don't think you'll ever see anything the CBI's ever done that's flavoured by a left wing view or a right wing view, a centre view at all. And I feel very keenly - you can probably tell - very keenly about this. What I'm on the side of is creating more wealth in Britain, more jobs in Britain, having Britain succeed round the world but doing it with a socially inclusive idea that means that Britain has got to watch its ps and qs, it's got to do more for the environment, it's got to be better employers and it's got to create some wealth in areas where frankly it hasn't gone before and be socially inclusive. Now that, to me, isn't party politics, that to me, is politics - of course it is - because it's dealing with people but it's actually about using business to create some wealth. I would never ever go down a party line and so I disagree with the guy because I don't flavour anything with my personal views because they're my affair.

    Newshost:
    But just in a nutshell now, we've got one minute left, what's the highlight at the CBI conference next week?

    Digby Jones:
    One, it's the role of America and Britain in creating wealth, free trade, getting globalisation to create jobs and not be anything else. And two, it's to say to the government - Gordon Brown's coming, Charles Clarke's coming, Patricia Hewitt's coming - to say to them, if you go on dampening down the flexibility of our labour market, if you go on putting up business taxes, business will walk and it will go to India and China and Brazil and it'll never come back and that is not, I submit, why you were elected.

    Newshost:
    On that strong point Digby Jones thank you very much for joining us. It looks like the government's going to have its hands full with the fireman's strike, the CBI conference and the pre-budget report next week. I'm afraid that's all the time we have for your many questions about the economy, our guest Digby Jones, thank you very much indeed once again. This has been a BBC interactive forum. I'm Andrew Simmonds, from me goodbye.


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