26/02/2013 Daily Politics


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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


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