26/02/2013 Daily Politics

Good afternoon. Welcome to the Daily Politics. Liberal Democrat

officials meet police officers to discuss allegation of the sexual

harassment of women, made against former Chief Executive Lord Rennard,

he will have the latest. A comedian and disgraced former Prime Minister

win voters' approval in Italy's general election, it is no joke for

the euro as it bridges political instability. What lessons can the

Conservatives learn from Mitt Romney's defeat in the US

Presidential election? We will have David Frum. Don't hold back, London

Assembly members fail in their attempt to block Boris's budget for

the capital. Birmingham voepbts big budget cut, but what will it mean

for local services? -- votes for. All that in the next hour, with us

for the whole programme today, is the pensions and investment expert

Ros Altmann. Welcome to the programme. Let us start with the

continuing problems facing the Liberal Democrats, following

allegations that former Liberal Democrat Chief Executive Lord

Rennard had sexual harassmented women who worked for the party. He

has denied the allegation, Nick Clegg said the morning he wouldn't

provide a running commentary on the investigation, but the Business

Secretary Vince Cable did at least give a walking comment on his way

to work this morning. REPORTER: How do you feel that Nick

Clegg has handled the situation. am just going to the cab and I am

focused on that. Did you feel annoyed he was putting out the

allegation and it seemed to change. I am not going to add to what I

said. I was comfortable with that. You didn't know about the

allegations? I have nothing to say about that. Are you worried it

might affect the Eastleigh by- election? I am working hard in the

by-election as all my colleagues are. We have a very good local

campaign, I am not worried about that. Let us go to our political

correspondent Vicky Young. Liberal Democrat MPs are meeting this

afternoon, they do that regularly, but is the party in crisis? It has

been an appalling few weeks not just with Chris Huhne pleading

guilty, and the accusations that Chris Rennard of course deny, so I

don't think any of them are pretending this is an easy time.

The problem is it is the handling by Nick Clegg originally of the

original complaint, did he handle those properly? Did the staff round

him handle them properly? They are the questions he will have to

answer. The way he seemed to change his story about initially not

knowing, then saying there were general concern, with the party

they are trying to focus on the two investigations they set up. They

say that is the only way to get to the truth of this. They accept

there is a big question about from seedures in the party, particularly

for those who are activists who aren't necessarily ep employed, how

do they speak out? That is what they will focus on and try to

improve. Liberal Democrats on this programme have said that this is

the story that Westminster is obsessed with. There is no doubt

there has been an enormous amount of interest in it, relating to a

man the public won't have herd of. There is a by-election on Thursday.

Yes, people in the party aren't blaming the newspapers or saying it

is politically motivated. They think it's a serious issue, they

know a lot of the front pages are continuing because there is this

crucial by-election in Eastleigh where the Liberal Democrats are

still, according to the polls in front of the Conservatives. They

say they are focusing on still of course trying to win that crucial

seat, I have been told today they have about 200 volunteers helping

out. Half the Parliamentary party are down there, they have cancelled

their meeting this after noon, because so many are down in

Eastleigh there is no point in holding it. Their focus will be on

trying to win ta by-election. They hope if they can pull it off, the

attention will fall back on David Cameron and why he hasn't been able

to win that by-election, given that the circumstances have been

appalling for the Liberal Democrats. Ros Altmann, what is your

impression? Well, it is an unfortunate story and the timing is

dreadful. I can't help feeling there must be some political

motivation behind the timing of the allegations, which have only just

surfaced now, whereas the incident happened so many years ago.

Allegedly. Allegedly. There is a lot of talk about structures in

organisation, one of the resluice look at whether the right

structures were in place, in Liberal Democrat organisation, to

teal with complaints like this, that is an issue that would affect

most organisations, in your experience do organisations have

proper struck churs this place to deal with it? There are many who

don't really take the issue of this kind of sexual harassment seriously

enough. It is improving and it has improved over the years, but there

is this difficulty and this fine line between what is acceptable and

what is not. If a chap is touchy- feely and puts his around you is

that acceptable? Most people would say it is fine. If it goes beyond

that, how do women really deal with that, and how do organisations deal

with helping women to, if you like, rein in wandering hands. Many men

treat it as a joke. One doesn't want to take it out of proportion,

it is clear there was something inappropriate going on, it is also

clear it wasn't taken seriously enough. We are not clear of course,

these are allegation, and they have been strenuously denied, but as you

say, it is difficult, sometimes to know how to deal with them, we will

be following this story for the rest of the week. The voters of

Italy have spoken, but it may be a while until we can interpret what

they have said. The origins of the current political battle in Italy

go back to November 2011 when Italy's former premier Silvio

Berlusconi was forced to resign Taff country's borrowing costs

rocketed out of control. Berlusconi blamed a conspiracy by Germany for

his downfall. In his place the President appointed Mario Monti, to

head a technocratic Government. However, Mr Berlusconi got his

revenge at the end of last year, when he withdrew Parliamentary

support for Mario Monti's administration, sparking this

week's election. But the results emerging today threaten it --

Italy's and with it Europe's economic stable. No party is

clearfully a position to run the country. Mario Monti's party

suffered a disastrous defeat only polling 10%. The Democratic Party

led by former Communist Pier Luigi Bersani have won the election in

the lower House, but Italy iest's constitution guarantees them a

majority there Berlusconi's party did better in the Senate where the

result means a hung parment. The joker in the pack has been Beppe

Grillo, a comedian whose 5 Star Movement received a quarter of the

vote, with policies promising tax cut, free internet and a 20 hour

working week. With us now are two expatriate observers of Italy's

political scene. Welcome to both of you. Do you agree with word on the

street if itly it is a country that is ungovnernable? Yes, I would say

it is, and it is disappointing, that there is no clear majority

there. Are you surprised? surprised. I mean, I think, the in

the run up to the election, I think the feelings were slightly

different, but I think it is clearly disappointing that there is

no clear majority and of course, markets do want a clear majority,

the economy need a clear imaginety, it is important to have a stable

Government. Now, of course, from my personal opinion, I would have very

much liked Pier Luigi Bersani to get a clear majority. Who would you

like to have seen lead a coalition and be Prime Minister. I have been

for a decade with the Labour parties in Europe. I would have

liked Pier Luigi Bersani to have a more stable and clear majority, in

which actually, in the lower chamber this did happen, and I

think the main point here, is really, and it is important for

those who are listening to us, to understand this, the electoral

system is very complicated, and it is a legacy of the Berlusconi

Government, and a legacy of Berlusconi who introduced a

complicated electoral system to make sure he secured the place in

power. Before we talk about the economic impact we can go to Rome

and speak to Chris Morris. Hello and welcome to the Daily Politics.

You are on the streets with people who have just voted. It is a bit of

as me, isn't it? --s me. It is a extraordinary result. You have a

movement that no-one really heard of four years ago, which has taken

the highest number of votes of any single party. It sun precedented.

We have seen across Europe in the last few years, in France people

voting against austerity. In Greece voting against austerity. Again in

a more dramatic way, I think, a clear majority of voters rejected

the kind of austerity which people perceive as being imposed from

Brussels. They rejected the old political class by voting in huge

numbers for this insurgent movement who is led by a stand up comedian

who is saying the politicians should be sent to the lunatic

asylum. It is a humiliating defeat for Mario Monti who was brought in

to try and stabilise things in Italy. Yes, I mean he barely

scraped 10% of the vote. This was the man, in effect, imposed on

Italy by a combination of Brussels and Berlin in 2011, the

technocratic Prime Minister, who was sent in to sort out the Italian

economy, it wasn't popular, then I think he made a mistake, he decided

to run in the elections, he was a university Professor, a European

Commissioner and during the election campaign, veteran

campaigners like Silvio Berlusconi ran rings round him. I think his

gamble, if you like, to triand put himself into the middle of Italian

politics has failed. Is there a chance that Silvio Berlusconi could

return as Prime Minister? At the moment n the current snartkwhree is

very unlikely, if there was another election, who knows? He did better

than many outsiders were expecting. We have three scenarios, one there

is another election. It is possible the 5 Star Movement could do better

next time. The second would have to be Beppe Grillo changing course and

agrees to work with the coalition, that seems unlikely, the third

option would be a grand coalition between left and right. Something

that has never happened before. If that were the case it would be led

by the centre-left with Silvio Berlusconi playing a role. From

this set of results it means his political career is alive but he

won't be Prime Minister any time soon. What is your' sesment now?

Has Italians have they rejected austerity, is that what this is

about? I think the election of, I mean the support for Beppe Grillo

is a bit more mixed in terms of interpretation. This is the comic.

First of all there was no rejection of the euro as such. If you look at

the polls in Italy. Italians tend to support the euro by a majority

of seven to three. Seven out of ten Italians support the euro. This was

a very big vote against the political class, the establishment.

The fact it thatn't been able to rejuvenate it. And the same faces

from 20 years ago are still round now. Austerity in a sense

accelerated this process, it was, it was much easier for Beppe Grillo

to get his message across, because people are clearly feeling the

squeeze. But I think that the clear message here, is one for Italian

politician, we are fed up of you, that is what they have said. We

want some change. What is this going to mean economically? Because

the markets will be spooked by this. The eurozone isn't out of the long-

term crisis it has been in, and further uncertainty in Italy is

just going to make it worse. Indeed. I think the problem here is that

markets have been happy until say, a few weeks ago, generally once...

He is going to save the euro from collapse. Then it started turning a

bit more wary because data showed the recession is still hitting hard.

The eurozone periphery and more generally. Is this election a

turning point? Is this another one of the moments we have seen time

and again where investors, all of a sudden decide that no, we, we have

given up on the euro. We don't think this is a process which is

going to continue. Will they test the willingness of the European

Central Bank to do whatever it takes to save the euro? This is the

question in the mind of many investors now. Are we there yet? I

don't think so, there is is a lot of uncertain tirblgs people will

want to understand how political developments, what political

developments we have in Italy and how Brussels responds. It is

The big question is to see what Pier Luigi Bersani and the

Democratic Party, the question is, what will Pier Luigi Bersani do,

and look at the possible scenarios. What are the policies which will

get them support? Italy is a country which needs reform. We want

every word in Europe a government that makes us pay fair taxes,

tackles unemployment, particularly youth unemployment. The question

for countries like Italy, Spain, is really how do we do, how do they

get their finances in order? And how do they do this in such an

unstable situation? This isn't just about Italy, Italy is the catalyst.

Markets are saying, lots of European countries have massive

problems he. The standard recipe of austerity has been rejected by the

electorate. Understandably, it is painful, especially for the middle

classes, the majority. Italy has, for a long time, had governments

which changed, minority governments which fall, political uncertainty

has been a feature of Italy for a long time. Other countries are

bound up with in this, in the euro. The problem for Italy is finding

someone who will garner enough support to push through those

reforms, who will that person be? At the moment, we do not know. It

who would you like to see? What Italians have told the politicians

is none other people who are in power at the moment. Not this

comedian. Beppe Grillo is not even standing in this. Italians have

said they would rather have something experienced new faces. If

you look at them, many have university degrees, good

professional experience. The message was, we do not want any of

the old faces to lead Italy in the future. That is the message. Who

will emerge out of this? One of the centre-right it will be harder, the

party is structured around Silvio Berlusconi. On the centre-left,

there are new faces who have emerged, one of them is the Mayor

of Florence, who was defeated in the primaries by Pier Luigi Bersani.

People are now suggesting he may have a second chance because Pier

Luigi Bersani is so weak at the moment. If there is data, looking

at the data, the result of the elections, one thing is important

to say. In 2000 added, Berlusconi and his party had 48%. 2008. That

meant he was able to form a state government. Now, at 18%. It is

disappointing Berlusconi is still there. Amazing. As a woman, I can

say, it has been difficult... does that say about the Italian

electorate, and... He has a significant share of the vote.

Beppe Grillo is new into the political landscape. He is anti-

establishment. It may well be that, in the current situation now, there

has to be some responsibility in saying, what can we do now? Is

there the possibility to go on? Will there be a government by next

week? Parliament will not convene until mid-March. The question is,

will there be a government in a month? The question is really for

the sunny macro and those in Parliament to answer. I do not

think the Democratic Party will create a college. It would be more

so part for Beppe Grillo and his movement, allowing him to play the

protest party role and do even better in a year's time. We could

have him back on in a month's time, a year's time. Now, what might the

British Conservative party learn from the result of last November's

US presidential election? The right-wing Republican candidate

Mitt Romney lost out, of course, to Barack Obama. There's been much

soul-searching in Republican circles about the result. Political

commentator and former speechwriter to George W Bush, David Frum, has

just written a book about why Mr Romney lost, and I spoke to him a

little earlier. So, how did Mitt Romney lose the

election? The first false narrative blames technology, the President's

team did have better voting technology. The second says that

the vote was all about immigration, he didn't do well enough. The

largest group of Hispanic and mixed Americans, you would expect them to

vote for Democrats. The mystery is that Mitt Romney lost among upper

income immigrants and he lacked in middle-class economic message. Why

should be typical American family vote for him? Until Republicans to

run up middle-class economic messages, they will not be

competitive. Is there an identity crisis within the republican party?

Not enough of one, it needs more of a crisis. It is better than after

2000 and it when there was a mental freeze. Even now, the party is not

taking the full measure of what happened. The Republican Party

dominated American politics until 1988. Many who run the Republican

Party remember that, they are not appreciative that since then, the

Republican Party has won the majority of the vote only one time.

Is the butter Col -- the Battle of where it stands in difficulty?

need better data, better voting lists, use of social media. Some

believe they have to change on the immigration issue but that does not

address the concerns of middle- class Americans. It is not a

surprise it does poorly among lower income most recent immigrants. The

surprise it does so poorly among higher income people, who are not

married, from professional backgrounds. How to win the middle

classes? How do they when back that centre-ground? George Osborne said

after Barack Obama won again, voters on both sides of the

Atlantic want social liberalism and economic toughness. Times are tough.

Our situation is different from Britain. The US is able to borrow

money, at 1.5% for 10 years, there is nothing like a debt crisis in

the United States. We need to restore economic growth. One way is

to have a more stable political system. Our economy would be

growing at 2% but for what is happening in Congress where we have

had three artificial fiscal crisis. My forget his Republicans need to

be culturally modern, environmentally responsible.

Culturally modern is a range of issues, it has to do in the

American context with having a less extreme view on guns. A message of

economic inclusion which does not speak only to people who are in

business. Can we learn lessons from what happened to Mitt Romney in

terms of providing an inclusive, socially liberal agenda? We have

much to learn from British Conservatives. They have accepted

the obligation to discover ways to be culturally modern and reflect

society. They have had great success with certain types of

immigrant groups, those poor likely to be self-employed, professionally

educated. We have to come here to learn, not the other way around.

what can Conservatives learn from the 2012 US presidential election,

if they are to win here in 2015? Joining me now is director of

market research company Populus, Rick Nye, formerly of the

Conservative Research Department, where he was a key proponent of

Tory modernisation. Also here is the Conservative MP Peter Bone.

The can the Conservatives learnt anything from the mistakes made by

Mitt Romney? To be fair, they have tried to over the last eight years.

David Cameron is seen as a more modern, more inclusive type of

Conservative, sometimes he maybe goes too far for the taste of some

people within his party. Does he go too far for you? I do not think it

is really about David Cameron, this argument about modernising... It is

superficial. People want to know what the Conservative Party stands

for. As long as we have a policy and agenda, we will do fine. What

does the Conservative Party stand for? On Europe, we will have a

referendum, that is clear blue water between us and the other

parties. And social issues? He is governing the party with the Lib

Dems. That is the real problem, how do we establish a Conservative

philosophy, while governing with the Lib Dems. What is stopping him?

You blame the Liberal Democrats, what is he being stopped doing?

Human rights, we would have a British Bill of Rights. You would

go ahead with proposals on same-sex marriage? That was an aberration

which came from I do not know where. Do not see that as culturally

modern, the things which are important for a modern party to

win? No, absolutely not, centre the cent of backbench ins --

backbenchers failed to support the Prime Minister. If we concentrate

on that, it is a big mistake. that symbolic of what the

Conservative Party in your mind needs to continue doing to

modernise and continue to detoxify? Or is it a backward step?

difference is deeper than that. The reason why David Cameron doesn't

have a majority and relies on the Liberal Democrats is because not

enough people saw that the Conservative Party had changed and

become culturally modern and sensitive to their needs. Peter

thinks it is because there wasn't enough blood and thunder...

about being on common ground where most people were, before the last

election, if you had promised a referendum, UKIP would have come on

board and we would have had a majority. You always talk about

centre-ground, you want to be on common ground. You need to capture

the middle class which is what David Cameron has done it so well

in terms of moving the Tories through this decade. It was clear

before that lots of people at the beginning, 2000, 2004, just felt

that the Tories were not for them. Tony Blair was an extraordinary

politician who moved his party along.

David Cannon has captured some of that. Why was he successful? He

spoke about what mattered to real people. People who do not wake up

in the morning and think, a wonder what this will do with the European

Union. They think about the cost of living. Law and order. They wonder

whether they have a government on their side. Those are the things

David Cameron needs to focus on. Not purity over Europe. Tony Blair

stood on things that people cared about. Any politician who wants to

win has to stand on those issues. But you didn't win a majority in

2010. We listened to back... This is the rubbish... According to what

the polls said... This is the great misunderstanding, immigration is

the number-one issue because of the European Union. People don't

associate it with the European Union. Was David Cameron wrong to

offer a referendum and give in to backbenchers? He wanted to stop the

conversation from dominating Parliament particularly inside a

fractious elements of his party. There is only so much oxygen in the

room and if it is taken up with rows over Europe, that is the way

to a landslide defeat. It also bought off the UKIP

challenge which politically was really clever. It immediately

dissipated the support in the way it was growing for UKIP. David

It could be pause the Prime Minister believes it is the right

thing to do. In terms of winning the next election, that is the key

for you, and you disagree on the direction of the Conservative Party.

To win the next election he needs f you like, both wings to fly, yes,

he needs to address some people who are dissatisfied with the

Government's record so for on things such as moving further on

benefit, even dealing with immigration, some people are voting

UKIP who won't take yes for an answer, trust me on that. He needs

the middle classes, there are as many people who voted Liberal

Democrat in 2010, that we need voting Conservative who say they

would consider voting Conservative in 2015 as Tories have defected to

UKIP. Well, I do like the evidence, it is just the way you misinterpret

id. What you need is get the UKIP voters back but you need to get the

people who didn't vote. That is the key to it. The fact a turn out is

so low. Get those back voting Tory and forget the Liberal Democrat,

they won't vote for us in 100 years, you are on a different planet.

the dif -- different planets we will leave it there. Quantative

ease, not perhaps the talk of the dog and duck but a key part of the

bank and the attempt to revive the economy. 375 billion has been

created by the bank, and used to purchase Government debt. Keep

interest rates down, and as a consequence stimulate growth. Has

QE been good for us? Has it worked? Perhapss more to the point, what is

it? We sent our reporter to find out. Out and about at the Bank of

England, today's teaser is, can you say quantitative easing?

Quantitative easing. Pardon? Quantitative easing. Quantitative.

That is difficult. Quantitative easing. No. Quantitative easing,

hard to say, harder to spell. Trust me. It is not to be confused with

QE, Queen Liz be. QI, which is quite interesting or the QE 2-2

though there as been more than one phase. What is it? Quantitative

easing, or QE, is often December -- described as printing money, but

that is misleading. QE is lending from the Bank of England, �375

billion of new money from the Bank of England has been used to buy

Government bonds. What that has done is reduce the interest rate on

those Government bonds, and longer term interest rates generally for

borrowers. Which has been good from the economy from that point of view

but bad for savers. It is not about printing money. But quantitative

easing, or QE has made Britain look like a good bet and allowed

politicians to paint a positive picture of the handling of the

economy of is all as Rosie as it might seem? The problem with QE it

lets politician off the Hook. Here in the UK we have a coalition

Government. Pretty much hampered then, not much they can do, and

there was you have the Bank of England doing all the heavy lifting,

all by monetary policy. It is all based on interest rates. It is not

based on fiscal policy. Some people think the money could have been

used better. One of problems is new money has come are the Bank of

England and end up washing round financial markets. You could use it

to fund a new invest bank. You could use it to fund the Green

Investment Bank to help renew infrastructure. You could also fund

housing associations, to start building new homes again, in

Germany, the state investment bank there is funding the retrofit, of

all the existing home, to bring down energy costs stkpw. A new man

will take over at the helm of the Bank of England. Mark Carney, head

hunted by George Osborne from the Bank of Canada, is he a QE man?

Given the slow progress of the economic recovery, it is on the

card we could have more QE. When Mark Carney comes in, it gives the

bank an opportunity to review how it is doing QE. He might bring in

new ideas from his experience in Canada and seeing what has happened

in North America. It is a good opportunity for the bank to start

using new tools to try and be more effective in stimulating the

economy. It might not trip off the tongue but quantitative easing is a

big part of economic life. It might be round for some time to come.

Quantitative easing. Says it better than most people in the studio.

With me the economist Leigh Caldwell and our guest of the day

Ros Altmann. Is it working? There is no growth. Quantitative easing

is really the only thing that stood between us and the fate of Spain

and Greece. Spain and Greece, Spain particularly was in a similar

situation to the UK, three or four years ago, running a Government

deaf set of between five and 10% a year, having to bail out bank, they

didn't have the option of their own central bank which could print

money to help finance that. So the Bank of England has allowed the

British Government to continue its deficit spending policy wit has

been forced to do keep the economy at least on some kind of even keel,

and so we have not had the same rise in unemployment and the same

level of collapse in growth than, and indeed negative growth Spain

and Greece have had. We would be worse off without it? That That is

always the Bank of England's argument. Because it has happened

we count prove what would happen if it didn't. We haven't got the way

of Spain and Greece. Not short-term, but that is because we have a free

currency, that doesn't mean we have solved the problems at all. What QE

does is, it creates new money, os sentencibly to ensure that bank

lending will support the economy. It hasn't work. You have driven

down long-term interest rate, but because of the side effects of QE,

which are particular to the UK economy, you have weakened growth

in other areas so although you have one foot on the accelerator, you

have the other foot on the brake. We have double-dip recession, it is

not like the economy has done well. GDP might have retracted again.

might have a triple dip recession, I hope not. Inflation has been

higher than other area, so I don't think QE has worked at all. What

would you have done instead? The point is, would you have done some

quantitative easing, would you have had some money being circulated by

the Bank of England, and then stopped it, now? Effectively the

first round of this printing new money might have been worth trying

in 2009. We were clearly heading for a major catastrophe. It is an

experiment and maybe that would have worked. The next two rounds

were just trying to help the Government finance the fiscal

deficit and trying to fool the markets our economyen isn't as bad

as it would look. We should be using new money to underpin

investment drebgsly. It is mask -- directly. It is masking the true

state of the economy and stopping decisions being made to bring us

into growth to stimulate the economy. Then we will come on to

investment. The Bank of England would argue it is not its job to

decide whether to invest in infrastructure or a green bank or

these things, the Bank of England's job is to provide the money the

economy need and then the Government's job is to decide how

to spend that. Now, I would not say that QE is the only thing that

should be done, I do personally, I think Government should invest more,

that the economy does need to continue its transition from

finance and housing based economy of five years ago, to a more

broader based economy. Now, and inflation is part of that deficit

spending is a part of that. QE is necessary to help that process

happen. Yes, there are some negative effects. What would you

say to anyone retiring and trying to buy private pension in the last

year or so who has lost undoubtedly has lost potential income they will

never get back? I sympathise with those people. The value of pension

assets, over the last few years has been higher than it would have been

without QE so the trade off is a pension fund is larger, the Stock

Market has gone up by 50% since 2008, but long-term rates are lower

so there is a trade off there. I understand that Ros's viewpoint is

about helping the pension, we can't sacrifice the whole economy for

that. I think my view is, that what we have done is taken money away

from people who don't have big debts and could be spending it, and

we frighten them into stoping spending. We have impoverish add

group of older people. If you like we have emasculated the grey pound.

The inflation rates have been higher for older people. They have

cut their spending, so by introduced a policy which is

supposed to stimulate growth, you have hurt growth, from those groups

of people who could have spend it. Anyone buying an annuity, the value

of their pension fund has not gone up more than the fall in the value

of the annuities they buy. argument goes without quantitative

easing, interest rates may well have gone up. That would have hurt

a bigger group of people, surely. We have to differentiate between

long and short-term interest rates. What is crucial for the economic

position is short rates. Mortgage rates are dependent on short-term

interest rates, the fact long rates come down doesn't make much

difference to consumer spending. Most key rates depend on short

rates, therefore pushing down long term rates has had a negative

impact because of the term structure of the private sector UK

balance sheet, where pushing down long rates hurts companies

sponsoring pension scheme, hurts people buying pensions and has

caused a problem for corporate UK as well as the household sector.

You have said QE is de-- designed to solve a psych llingical problem,

which suggests it is nothing to do with economics The two are closely

linked. There is a particular problem called money illusion, the

bank aims for a positive rate. If inflation were to fall low tore 0

or 1% it would hamper the adjust. Of the economy. People don't want

wage cut, they don't want to accept price cuts but inflation allows the

economy to be more flexible. Inflation at the moment, of course,

is killing people in terms of standard of living. Their wages are

worth less, spending how o -- power is worth less. Anything policy that

was designed the keep inflation higher is doing to make life more

difficult. Remember it is a reflection of people's wages

increasing and wages are increasing, probably not quite as fast as cost

but they are going up 2%, so the effect on wages is not as high a it

is some timeing to -- some sometimes thought to be. With

strict financial constraints it is none an easy task to set budgets.

We will hear about the decisions that Birmingham is facing. Let us

see what happened at the London Assembly yesterday when Labour's

members spotted an absent sorry member might mean they could defeat

Boris beers budget. To go they had to vote that he should leave the

chamber. Perhaps unsurprisingly, that didn't go down too well..

that means then, that we then thank the Mayor for his attendance,

because the assembly members have decided they have no... They are

you saying they are advocating their duty to scrutinise me? Are

you saying they haven't got the guts to put questions to me. Great

supine protoplasmic invertebrate jellies! That is it. They don't

want to ask me questions you have been cheated. Your Labour, your

Labour accomplices have failed in their duty. Mr Mayor, Mr Mayor,

In the end, the missing Conservative came back in, so Boris

got his budget through. This afternoon, it's Birmingham's turn.

120 city councillors will meet, to decide on spending for next year.

Depending on your political persuasion, it will lead to

swingeing multi-million pound cuts, or much-needed multi-million pound

savings. So, what will it mean for the million people governed by

Europe's largest local authority? Mary Rhodes from Inside Out in the

West Midlands has been finding out Here, the government's money

problems mean nothing to these young people.

I want to give back what they gave me. This Saturday Club in at Selly

Oak is only here because of him. Cash run-out, so dale run over.

There are a lot of grateful parents. There is very little in this area

now. Children with special needs. This is a valuable centre. Dale is

keen for a maths lesson, we give him the chance to meet the

political power-brokers. This is the scale of the cuts

Birmingham City Council has to make, by 2017, they have to save 715 --

�600 million. The next year, �100 million. They have to lose �24

million from the children and families budget. To put that into

context, the amount they have to save, �70 million more than it

costs to build the new City Hospital. That is a lot of money.

They are cutting quite a large sum from a vulnerable group in society.

Birmingham will have to cut services to bridge the �600 million

funding gap. Is it fair? In a 2013, we have made sure, unlike other

parts of the public sector, we need to be brave, radical and bold.

did you make of what eric pickles had to say? He had some very good

points. We need to make the cuts where we need to but it can be

difficult. You can't just get on with life, it will affect a lot of

society. It is a balancing act. * Robert bought is the leader of

Birmingham city council and controls a �3.5 billion budget --

sir Albert Bore. Eric pickles say he wants local government to be big,

bold and brave. How were you rise to that challenge? We will do

exactly that by looking at the services in the way we are. The

people of Birmingham will see what we are spending our money on.

Exactly what it is. And take a view which services we should

discontinue, and decommission. It is the end of local government as I

have known it. It has been an interesting journey.

They have accepted cuts have to come in but have reassured me they

will be hopeful about the cuts and think about society as a whole when

making these decisions when cutting services. I am more positive. All

we can do is wait for them. We joining me now to discuss what

that might mean for the rest of the country is Brandon Lewis, the

Conservative local government minister. And our guest of the day,

Ros Altmann, is still with us. Are you happy that they have said,

to balance the books, it is the end of local government as he knows it?

Local government has risen to the challenge. They have had big

savings to make. It accounts for a quarter of all public spending.

There is a challenge, local government is moving forward to a

new future working in a different way with communities. Including

cutting Children's Services by �24 million in Birmingham. They have to

balance the books. Are you happy they're making �24 million of cuts

to Children's Services. They have to look at what they need locally.

That is what localism is about. Are they making the right decisions

with the assets they have got. Should they be looking at how they

maximise income elsewhere which many councils are doing. Councils

own millions of pounds of assets. On average, local authorities face

an average �61 cut in central government funding per head of

population. Even up to one had and �60 per resident, some including

the poorest areas in the country. Is that fair? -- �160. You are

hitting some of the poorest parts of the country, with �160 per

resident per year, higher than the average. I had a debate this

morning talking about Knowsley in Liverpool where they have is spent

per head of �3,200. Constituencies like mind and, in deprived areas,

we start from a very different point. The average is still only

1.3% change in terms of spending power.

My real concern here, looking at the composition of local government

spending. We are seeing that spending on children is being cut.

One of the big reasons for that is, in huge chunk of local government

spending has to go on social care, particularly for increasing numbers

of older people, depending on where you are in the country. There are

greater proportions of older people. Also, on the local government

pension payments. Those two areas are pretty difficult to cut at all

if not impossible. So that means you will get other cuts happening

elsewhere particularly for children. I do not want to see more of this

inter-generational envy. Should one perhaps take the social care budget

and pension budget outside the normal local of 30 discretionary

spending, so you can make more rounded decisions about what the

composition of local services should be. It is a good example,

the local government pension scheme, a funded scheme, 89 different

schemes in the country. Local government can come together and

rationalise that. But york council says sharing services would only

save �170,000 which is nothing in terms of the millions that council

has to say. If you are demanding those savings from services that,

by law, councils have to provide. I disagree with the point, the

previous administration was looking at savings of half a million pounds.

They are finding about �1 million in a year in savings. In London,

looking to save �50 million a year, we shouldn't underestimate by

coming together. Anybody in business will say they must be able

to find savings. Redefining services that a council bylaw has

to provide. A statutory duty to provide. How will they do that?

Lancashire is the cutting council tax by 2% this year. There are

things local councils can do. number of statutory duties the

council has to provide by law. are always looking at what local

government provides. It is always under review. Where are you with

this review? We have cut quite a lot and looking to cut further.

Which services... A lot of it is time and money spent on reporting

back to central government. In terms of services, they have the

power to decide locally what they deliver. Most importantly, it is

about how you spend that money. How you work together. Rather than...

Many councils, small authorities, small districts, they are coming

together. What should they stop doing? We have published a document

to look at sharing management, services, procurement. Take care of

the pennies and the pounds will take care of themselves.

Recommendations take them all the way through from really big savings,

through to some of the small things. Is it achievable? If you are a big

council providing social adults care, providing for poor parts of

the country, it isn't possible to make those sorts of savings? As we

guffawed, it will be increasingly impossible for local councils -- as

we go forward. Clearly, at the moment, they have cut the amount

they are paying people to provide care. They can't cut it any more.

We will need to look again at what areas of local authority spending

we can use with discretion and can may be financed centrally.

Now, for the last few weeks, there's been a dramatic by-election

battle going on. The end of the race is on the horizon, and the

result will be felt all the way to Westminster. That's right. It's Bob

Servant's fictional fight for the Dundee seat of Broughty Ferry,

which concludes on BBC 4 this week. Let's have a look at Bob's

preparation for the big hustings. Mental preparation! That the game.

It all starts with this. Brain food. We should probably go over some

policies. Quite the opposite, but at the great debate is, Churchill,

Thatcher. They thought on their feet. Is that your plan?

We're lucky enough to be joined from Glasgow now by Bob Servant.

He's better known, of course, as actor Brian Cox.

Any tips for the candidates in the dramatic by-election in Eastleigh,

apart from brain food? A I don't think I have many tips

for them, just carry on doing the inadequacy they continued to do!

How very profound. Tell us why you are so keen for Scottish

independence? Well, I just think, I am more keen about English

independence as Scottish independence. England will go

independent as well. We really have, our political system is failing us

daily. And what we get on the news every day. And it may be Scottish

independence would be away of shaking these islands up in away

they haven't been shaken up for a long time. Do you still live in New

York? I spend more time here because I am the rector of Dundee

University, my children don't even recognise me in more because I am

hardly in New York. So we can't accuse you of hypocrisy. Nabbing

macro, I lived in this country -- no. I have never been away, I have

always come back. My work has taken me to America, doing movies. We

don't have a film industry here. Would today's Brian Cox grown up in

Dundee make it to Hollywood? because one of the problems in this

country today is there is no social mobility any more, a child like me

would not be able to go to drama school because, simply, they would

not be able to afford it, to pay back their fees. As a kid, and went

to drama school, �11 a week I had, 1961. 1963. I had my grant paid. My

mother was a widow. I was taken care of by the Scottish education

or authority. We have seen more and more children being marginalised,

having to pay back. We have seen a sector of society being ignored.

Will there be a rise for more independent candidates? I think so.

I am worried about Eastleigh, I am worried about the by-election, what

will happen to the Liberal Party. We do need a third force but that

has been diminished. I do believe that we don't want to go back to

the two party system but, unfortunately, the leader of the

Liberal Democrat has shot himself firmly in the foot.

We will come back to that on another day. That's all for today.

Thanks to our guests. The one o'clock news is starting over on