18/03/2014 Daily Politics

Good afternoon, and welcome to the Daily Politics. It's the eve of the

Budget and today the coalition's talking about childcare. They're

going to give working parents state help worth up to ?2,000 a year per

child. It's a big offer, but it won't kick in until the autumn after

the general election. And I want to know what George Osborne will have

in his budget tomorrow for ordinary working people. A mansion tax? A new

10p rate of tax? I'm not holding my breath.

The referendum on Scottish independence is only six months

away. What does it mean for people on Orkney and Shetland, who might

have more in Common with the Vikings than the Celts?

And did we mention it's nearly time for the Budget? We'll talk about

what it's like to be in the Treasury before one of the biggest political

events of the year. All that in the next hour, and who

better to join us the day before a Budget than a man who knows a thing

or two about being chancellor in tricky times and during a recovery.

Norman Lamont held up the famous red Budget box three times, and on at

least one occasion all it had in it was a bottle of whisky. More on that

later, but for now, welcome to the show.

First, let's look at what could only be described as a bit of an Eton

mess in the Conservative Party. Over the weekend, Education Secretary

Michael Gove said it was "preposterous" that so many members

of the Prime Minister's inner circle were old Etonians. David Cameron,

who's not exactly fond of the continuing focus on his alma mater,

was apparently furious. According to the Spectator, he told Gove he was

"bang out of order". Sounds like he was channelling an episode of the

Sweeney there. Well, last night the Tory peer Sayeeda Warsi chipped in

to the debate, and hasn't exactly calmed things down. Here she is on

ITV's the Agenda. Mine is this one, which is the story that we had

earlier this week. About Michael Gove talking about people at the

top, at the top of cabinet. So it is Number Ten takes Eton mess off the

menu and replaces it with bread and butter pudding. So that business

about looking for a new job on Wednesday. Michael was making an

incredibly serious point, it can't be right that the 7% of kids who go

to independent school end up at the top tables not just of politics but

banking and law and every other profession, what Michael wants to

create is a first class world class state system, which means in future

years you will have more pupils from state schools round the Cabinet

table. With that was a helpful intervention? I am not sure. It

sounded cur you but the basic point is right, that what Conservatives

believe this is a society lifting up the ladder for everybody to be able

to get to the top in whatever profession, you don't do that by

making private education illegal or something like that, or taxing them

out of existence, you ought to be proud of the fact we have good

private school, but the object is to increase the state system, and make

it better and better. But issue -- is she right that the appearance of

a number of old Etonians round the table at Number Ten will David

Cameron reinforces a fact, really, that the top jobs in politics, and

other industries and ways of life are dominated by the small number of

people who go to the top Private And public schools. I don't think every

time people look at David Cameron or Boris Johnson, they think went to

Eton, Boris is one of the most popular politician -- politicians in

the country. Thinks company Tays to and politician who are obsessed with

this. What people really want to know is that the people who have the

jobs are competent and can do a good job. I read the Michael Gove

interview, and although he said it was preposterous, I understand why

he says that, it is an extraordinary coincidence, really, but he was

saying how he thought all the people who were old Etonians in Number Ten

were good at their jobs, Should he not have said it? I think perhaps

the word preposterous wasn't too helpful. In context it was

reasonable. What about looking ahead, I mean there have and has

been speculation that one of the reasons that Michael Gove has been

talking about let us not have another old Etonian at the top is to

in some way prevent Boris Johnson becoming the next leader, would it

be preposterous if another old Etonian became leader of the can't?

I don't think that is what he had in the Conservative Party. I think he

is Education Secretary, was making the point as about how you need to

improve the state system, so that this situation doesn't keep

happening. Right. I mean, is it now time for people to stop talking

about the schools that various politicians went to, you say it

doesn't impact the public, it is more of a media or a political

invention, but do you think it has a subliminal message to voters? I

don't think it has very much impact. I really don't. As I say, Boris

Johnson, I don't think the people think what school he went to, I

don't think they think that with David Cameron. What school did you

go to? I went to a Scottish school a rival of Tony Blair's school. A

rival of Fettes. Now, regular viewers of the Daily Politics, is is

there any other kind will know we are keen to cut costs, and so we

have been auditioning for an MP to join me an a -- and Andrew in the

studio and take care of the hard bits. Have a look at how Tim Farron

and Grant Shapps got on. Back in 2010 one of Nick Clegg's key

election promises was to raise the income tax threshold to ?10,000 a

year. A tax cut of ?700 for 25 million people. Now at the time,

David Cameron said the idea was unaffordable, but from next month

that idea becomes a reality. In fact, the Conservatives like the

policy so much they like to pretend it was their idea in the first

place. Ed Miliband and the Labour Party have tried to attack the

Government's long-term economic plan, by claiming that it would lead

to the disappearance of a million jobs. But Ed Miliband's prediction

was wrong. By backing small business, and reducing jobs taxes

the Conservative-led Government has helped the economy to create more

jobs than ever before. Well, that was Liberal Democrat

party President Tim Farron, followed by Grant Shapps, talking about the

economic policies is of their respective party, next up, to have a

go at the Daily Politics's big board, it is a very difficult job is

Shadow Energy Secretary Caroline Flint. Here she is talking about

Labour's plan for the economy. Tomorrow, millions of people will

want to know how the Chancellor will help to make life easier. Labour has

always wanted people to get on in life. That is why we introduced the

national minimum wage. So what should George Osborne do? I believe

he should bring in a new 10p starting rate of income tax. It is

not a new idea, it was first introduced by the last Labour

Government, and it was a mistake to remove it.

A 10p rate would say 24 million taxpayers ?100 a year. It is a small

affordable measure to help off set the cost of living crisis. So how to

pay for it? Labour would introduce a mansion tax for properties worth

over ?2 million and we would get rid of the marry couples tax allowance,

this daft policy will help one third of marry couple, 84% of the gainers

will be men, and just one in six families with children will benefit.

And what is more, people don't get married or stay together for the

sake of ?3.85 a week. At tomorrow's budget David Cameron and George

Osborne will probably try to do another victory lap. But working

people are 16 hundred Mourinho a year worse off than in 2010. --

?1400 a year. -- ?1600 a year.

Well, cue the applause, you did a marvellous job, like you two

predecessor, come and sit down an join us for a discussion on what you

talked about in that big board. Are too many people in your mind 5.3

million says HMRC paying the higher 40 pence tax rate? I think, you

know, people are concerned about that, but I think it is about having

a fair policy at the low and middle-income level. That is why we

believe the 10p starting race should be reintroduced and on top of the

extension of the personal allowance, in these difficult times, it is

about making difficult choice, what I wouldn't be doing is giving a ?3

billion tax cut to people everyone over 150,00 pounds a year. I could

think of other things to do with that. We will come to the 10p

starting rate of tax and that being Rhone produced. On the 40 pence,

there has been discussion about that, is it something that you think

Labour should raise the threshold on? Our priority is in terms of the

place we are in at the moment, with the recovery not being a recovery

for people on low and middle-incomes is toed a dress at the bottom end.

Those people up to the higher rate, also benefit from the extension for

the personal tax allowance. Wouldn't be a priority. What would be a

priority for is getting the 10p tax rate reintroduced but cutting the 3

billion give away. That is our priority. Why should the 40 pence

tax rate by a priority for a number of people in the Conservative Party?

We heard from Nick Clegg that overall, even people who have been

taken into that tax rate pay less tax overall? When it was first

introduced by Nigel Lawson it applied to one in 20 people. It was

intended to be the top rate of tax. It is now dragged in more and more

people, so it is now one in six, it is forecast that next year, it will

be six million people paying this tax rate. That includes nurses,

teachers, tube drivers, Warrant Officers in the army, policemen as

well. So there many people not remotely wealthy who are affected by

this. It also has a long-term structural problem, that you are

taking people out of tax, and financing it by making people higher

up, but who are not wealthy, pay more. In the long run with that is

not sustainable. What about the fact it could be aspirational. The

indication from George Osborne people who get pulled into that are

more likely to vote Conservative? Well, I think he denied what was

attributed to be saying to him, if the argument was put it would mean

that higher taxes were saving people's lives because it was

causing them not to work too hard. I don't believe he said anything like

that. Do you accept that in the current state of play, people in

that tax bracket overall, because of the raising of personal allowances

are paying less tax overall? They are benefitting compared with how

they otherwise would have been. Obviously, we started off with a

system that we thought was fair, people paying 40% at a particular

band of income, it has been lowers twice, since the coalition came to

power, that is the problem. No-one is saying that it isn't right to

raise allowances, merely there ought to be a balance between the two.

Right. Isn't it dangerous for Labour to revisit this idea of Rhone fro

Tuesdaying the 10p rate of tax when it was a disaster when it was

scrapped. It wasn't a disaster, it was a good policy and we were wrong

to get rid of it. What it is about is making sure once you leave your

tax free personal allowance, instead of going on a cliff edge to pay 20

pence in the pound we suggest you pay 10p in the pound for the next

slice. That is a good thing. It recognises the needs of those, if

you like the bottom of our income ladder, but as an incentive to get

into work and carry on working, and that is a good thing. How beneficial

would it be for the average working person? What it would mean, we pay

for it through the married couples allowance which the estimates are

round 700 million and the estimates round a tax on properties over 2

million is round ?2 billion. That what would do is ensure that roughly

round, if you were earning ?1,000 over the personal allowance you

would get ?100 back a year. We think we can do it within those areas. It

is a small. It is quite small. I want to ask, because increasing the

penal allowance to sok, because increasing the penal allowance to

so,000 which is what is going to be proposed will be worth ?112. But

that would be more beneficial This is Addington that, it is about

recognising about the personal allowance and building on it so when

people start paying tax they pay 10p in the pound instead of 20 pence.

This is something we can afford through the measures I have outlined

to pay force, it is says let us help work pay and encourage people at the

bottom of the labour mark to go into work and carry on. What is your

response to that? It is marginal. It is shuffling the deckchairs round

but not making a significant difference. It is an added

complexity, that is why Gordon Brown got rid of it in the first place.

It's a crude measure. It is simpler to take people out than to have a

lower rate, frankly. I am not violently against it. But, I mean,

in the end is it is worth going through that amount of pain, and

work and complexity, for what what is ?104 a year, instead of raising

the allowance further, which gives people more? I know you will put it

on top If I am given a choice, between giving a 3 billion tax cut

to those earning over 150,000 and doing something to help those at the

sharp end I would go for the latter. Labour is goes going to go on

ability it until the next election, has the coalition shot themselves in

the foot over that? No, the mansion tax will be another disaster for the

Labour Party. It's a dangerous tax, the mansion tax, because I think a

lot of people will have great difficulty in paying it it. It could

have a big impact on the property market in the south, and lead to a

chain reaction, I think you will find if it comes to it, it is a

disastrous policy. We are consulting on the mansion tax and the

fermentation of it. There are some issues that you are referring to,

where people have a property worth ?2 million but no income coming in,

and we are looking at that. But the truth is that anybody, in London or

elsewhere in the country, if you have a property worth ?2 million,

that is a major asset. This is about being fair but we are consulting on

the details to get the implementation right. I think it is

a fair balance of meeting different interests. I don't think it is fair

to tax people on a liquid asset when they don't have a high income. We

are having a consultation on that. Not many people live in ?2 million

properties without an income. Have you got any idea about the numbers?

Old people left in a house that they bought themselves and they are still

there with no income? Not many people sit on ?2 million properties

with a small income, not like the pensioners in my constituency.

People looking at this are talking about tens of thousands. A working

figure, and this is why we are consulting further, says that we

could raise ?2 million a year. Why shouldn't people living in an asset

rich way, and probably with a large income, and we are talking about

London and the South East, why shouldn't they pay more? If

democracy consists of trying to rob Peter to pay Paul, there is no doubt

that Paul will not vote for that. But you cannot go on and on doing

this and moving just in one direction. We are moving to a

nonsensical tax system, where a very high proportion of income tax

revenue is coming from a very small section of the population. The OECD

warned about this the other day. The tax base in income taxed terms is

coming becoming too narrow. The tax breaks for married couples, is that

really a good idea for the amount of money people get? When I was

Chancellor I abolish the married couples allowance but there seems to

be a move to bring it back. You agree with Labour on this one? I

think if there is a married couples allowance, you have to answer one

awkward question. Why should a couple with no children get the tax

allowance that is designed really for people with children? I think

the better route is actually to target children. All right. Thank

you, Caroline Flint, for doing the big board.

David Cameron and Nick Clegg have been visiting a nursery this morning

to announce the coalition's big new plan to help families with the cost

of childcare. So what are they offering? The Government said a year

ago that it would provide support of up to ?1,200 per child. That has now

increased, so parents paying ?10,000 a year on childcare could get ?2,000

from the state. Up to 1.9 million families with children under 12 will

be eligible. They can claim the cash as long as both parents work and

they earn less than ?150,000 a year each. Labour says this policy is too

little too late. Their own plan is to extend school hours and increase

the number of free childcare hours per week. Let's hear what Nick Clegg

had to say earlier today. David Cameron and Nick Clegg have

been visiting a nursery this morning to announce the coalition's big new

plan to help families with the cost of childcare. In the help that we

are giving to people who face high childcare costs, and the worst thing

to do is to raise people's hopes that they will get support for

childcare costs, though we think it is better to say to people that we

have looked at this carefully and say this is a total change in the

way we provide support. Basically tax free childcare support and 2

million families will be helped. Politically we could rush to get it

implemented this September but our fear is that it would not work in

practice if we did that and we want this to work in practice so that

millions of people feel they have more help with high childcare costs

than they do today. The plan is to introduce it next autumn. We are

joined by the Lib Dem MP Lorely Burt and Caroline Flint is still with us.

Is it fair that this benefit would be available for couples who can

earn up to ?150,000 each? I think it is unequivocally good news. Not my

words but the words of the Child poverty action group. If they think

it is a good thing, we are on the right track. In the narrative about

austerity and they're being not much money, and no giveaways, why is it

that a household income of ?300,000, the people living there

deserve that kind of tax break? That is the absolute maximum that you

have identified. At the other end, the measures we are doing are

specifically targeted to the most disadvantaged children and the

families with the least income. For example, universal credit. Fantastic

that we are going to find 85% of childcare for anyone striving to get

off benefits and into work. It is a generous offer in cash terms, if you

want to look at it that way, at a time when there is not much money.

You support it? It is up to ?2000 per year and those with the highest

childcare costs will probably hit the top end. I am not against it but

what worries me is that over the last four years, families with

children have lost ?1500 per year from child support. This policy has

been announced before. A classic Budget situation, not coming in for

another year. It is on a wish list for tomorrow. We have seen for the

last few years that the cost of living has gone up and childcare has

gone up as well. In some areas, childcare has disappeared because it

has not been a viable business because parents cannot afford it.

This is a massively important area. We believe our policy to provide

extra powers for working parents for four -year-olds is a good one but

really people with children have missed out over the last you years.

I would prefer it to be more targeted. We wonder if we are giving

too much by upping the threshold for the 40p rate. That applies at an

income of ?41,000. You know, I welcome the policy, but I think in a

way it should be more targeted. What are you doing for stay at home

mothers? Well, lots of things. As far as income is concerned, we are

raising the threshold at which the partner will start to pay income

tax. This wouldn't help stay at home mothers. Well, no, but staying at

home is a choice. This policy is specifically targeted at women who

want to go out to work. I applaud the fact that we are helping in this

way. If you have got two children under the age of 12, you could get a

maximum of ?4000 with childcare. The cost of childcare has been

identified as a huge challenge to parents who do want to work. What

about looking at the childcare itself and childminders? There was a

proposal that was sidelined or dropped for childminders to take

care of more children. Why not look at that? The Liberal Democrats are

not very keen on expanding the number of children that one

childminders can look after. We feel that each child deserves a minimum

quality, and amount of time and attention. That is why we were not

particularly keen on pursuing that policy. And that will not be looked

at again? I don't know. It is above my pay grade to comment on that! You

mentioned the wraparound childcare that your party is proposing. How

would you pay for it? It is about making sure that in our schools, the

ideal community to offer before and after childcare, that there is an

obligation to provide it. They do already. Not all of them. I met

someone whose primary school opens at 7am in Mansfield. That allows her

to drop off her son and get to work. That is not the case in every

school and we wanted to be a statutory responsibility for every

school to provide it. It is not necessarily about paying for it. On

the payment side, we have said we want to extend and pay for it

through the childcare levy, extending 15 hours to 25 hours where

both parents are working. That is helping the supply side. OK, but

first of all you want to make sure state provision is there in the

first place. Then you want it to be paid for? You can provide through

these allowances or other means support for childcare but we have to

stimulate the supply side as well. One of the ways to do that, schools

is the ideal place to provide for school-age children and to make that

happen. How much does the levy give you to spend on this? We have worked

out it gives us enough to provide ten hours a week extra for working

parents and we have been working on that. Around 700 million or

something like that. Unfortunately we have been counting how many times

Labour have spent the bankers' levy and we are up to 11. You have said

you will spend it in different ways. You have no way of actually paying

for it right now. It is economic league incoherent. Just to be clear

for you and anyone watching, the banking levy will just pay for the

extended childcare. The banking bonus will go towards the jobs

guarantee. And those are the only two commitments? The banking bonus

and removing tax relief for those earning over 150,000. And the

banking levy for the extension for three and four-year-olds, and the

mansion tax will pay for the 10p starting rate. So those promises

that you have accused Labour of making without costing them, they

have gone? If they have all gone, what are they going to do to restore

the economy? They have no way of paying for all the other things that

we have counted as costing up to ?30 billion. They have no way of paying

for all of that. I don't want to keep repeating myself. These are

proposals that we have said we will have and we will pay for and we have

identified how we will pay for them. Moving to the general election, we

will look at other matters, but we will stay within spending limits.

Thank you. Tomorrow there will be full coverage

of the Chancellor's statement on BBC Two from 11:30am. If you want to

comment you can text your views to 61124 or use the hashtag budget2014.

Crimea has always been part of Russia. That is the message from

Vladimir Putin at a speech at the Kremlin. He has been speaking two

days after a referendum in Crimea on Sunday. The vast majority opted to

leave Ukraine. Now they are exploring possibilities for Crimea

to join the Russian Federation. This is a flavour of what Putin had to

say. On the 17th of March in Crimea, there was a referendum in

full correspondents with democratic procedures and legal norms. 80% of

voters took part in the referendum. More than 96% voted for

reunification with Russia. These figures are more than convincing.

Norman Lamont, it has happened. The referendum has happened. Crimea is

to all intents and purposes annexed back to Russia, if you like. What

can the West do now? I don't think there is a huge amount of the West

can do but it must be seen to do something. The sanctions that are

being put forward are at least something. It is a start. Listening

to what Vladimir Putin was saying, he was saying that the figures were

convincing. I don't personally doubt that the majority of people in

Crimea want to join Russia. But I think the criticism is that it

should have been done in an orderly, very transparent way. It

was rushed. There was no actual register of voters. There was also

probably a certain amount of intimidation from the presence of

Russian troops being on the streets and not in their barracks. It is

rather chilling and the great worry is about what will happen in other

parts of eastern Ukraine, where there are Russian minorities. That

is the fear of some Ukrainians and Western politicians. Do you think

that the posturing, has some Russian commentators have called it, by

Western leaders of denouncing what Vladimir Putin had done, that the

troops were going into Crimea, actually forced his hand. If he had

said that you have some legitimate claim to Crimea, let's negotiate on

the future of the semi-autonomous region, then that might have

de-escalated things a bit more. 300 warships there and a large number of

aircraft as well, so it is very central to their defence, but this

isn't the way to go about it, in a rushed referendum like that, I think

we have got to be clear too, that ethnic Russians in Ukraine will be

well treated. That has not always been the case in the Baltic, you

know, some have not beenel treated. There will be genuine Russian

anxiety, what is needed is communication and an understanding

on both sides. Let us leave it there. It is one of the issues which

rightly or wrongly is seen as something of a Conservative

obsession. Europe. They took us in, but appear to have been fighting

about it ever since. With the row of dominating the Premierships of

Margaret Thatcher, John Major and perhaps David Cameron too. So just

what is it about the Tories and Europe? We sent David round the

corner to find out. We should warn you, there is some flash photography

in this report. The old Conservative Central Office,

the scene of Tory triumphs and tear, the power base of leaders whose

times in office were often dominated by a single issue summed up in a

single word. Europe. The Iran anyis that this place has

been renamed Europe house and is the UK... Perhaps in a strange way that

is quite appropriate, because from Ted Heath to David Cameron, Europe

has been a touch stone issue, some might say a raw nerve for the

Conservatives. Ted Heath took us in, Margaret Thatcher we'lled her

handbag and said no a lot. John Major was driven to industrial

language and David Cameron wants to stay in a reformed Europe while

under pressure to get out. Michael Dobbs has had a ringside

side. In central office under Thatcher and Major and with a key

role in the EU Referendum Bill All parties are coalition and the

Conservative is also a coalition, various interests in it. It has a

tricks interest, a radical aspect to it. All of those it is happy

together and most issues, but Europe does manage to bring out the

different aspects of that coalition. John Major was hamstrung but people

we might callure resceptics but he called something not suitable for a

family show. Have they won the war? I think Euro-sceptic -- sceptics who

are now running the Conservative Party, in the main, were of course

correct. We rightly said that the euro would be a disaster and we

helped others which that battle, so that Britain is not in the euro, now

we are saying very clearly that we want a new relationship with the

European Union and that is the view of our leader and Prime Minister

David Cameron, so we are happy. There are happy to claim Margaret

Thatcher as a Euro-sceptic champion. She got what she wanted, she took

her handbag with her and I think we have achieved a huge amount under

her Premiership for Europe. Let us remember that she was there at the

forefront, voting, pushing us in the referendum in the '70s, to have a

role in Europe, so I don't see her as a Euro-sceptic, I see her as a

euro realist. So what would Mrs T tell Dave to do

now? I think that Margaret Thatcher would probably be very supportive of

the idea of a referendum. I think that she would be arguing that

Europe has to change in the EU has to change radically, but I think

that she would also not be saying right now, under any circumstance,

no matter what happens to Europe, that we must get out.

The party might live elsewhere, the times maybe different but Europe and

the Conservative also have an interesting relationship, no matter

whose name is above the shop. Laura Sandys joins us now. She is

part of a group of pro European Conservative MP, behind the relaunch

of the European mainstream group Yesterday. Welcome to the programme

and lament is still with us. Why has Europe been such a thorn in the

flesh for the Conservative Party, in a way it hasn't been for Labour? I

think it is partly because Europe has become so integrated. When

people originally supported our membership they didn't foresee it

could become in ind greated, it would more towards becoming a

political Europe rather than an economic idea. Side by side with

that, and this I think is the real issue, it is a question of

democracy, and accountability. Yes, as Laura says, and she puts things

persuasively. Margaret Thatcher was good at getting deals, but we are

more and more having regulations and laws that are the result of bargains

done by Governments, behind closed doors, and the ability of Parliament

to amend, to respond to voters' concerns is limited. Democracy is a

bit of a one way street in Europe. You pass something after a lot of

negotiation, you can never amend or reverse. On the regulation issue I

think it is fascinating being half French. I see that the French don't

implement EU regulations in the same way at all. That is a responsibility

of what we in this country do. I think we have got to look at Europe,

and I think we have to say to ourself, those people who want to

come out, this would be the first time in modern history, that Britain

would say we want less influence in Europe. We see where Europe is going

at this moment. These are crises we have to be sitting round the table,

we have got to be exerting our influence and Norman, you are right

I think that Europe has become very internally focussed. We need to have

ambition, externally beyond Europe to make sure we Powell weight. In --

pull our weight. In your group, only round 18 members are prepared to

acknowledge their position publicly. No, no, no. Many more. 45 people

have been explicit... Some people... Are they ashamed? Not at all. 62

backbencher, so there are more within the ministers as well. I

think one has to say that this is a moment when you know, it is not

always the most fashionable thing to be pro European in the Conservative

Party, and I think we have an imme sieve group, cross section

particularly of 2010 intake of MPs who are making the care, we need

reform but we need to know our future is within Europe, and making

and shaping Europe. Do you think the Eurosceptics have won the battle in

the Conservative Party? I think that have won a lot the -- arguments but

they will go on. Europe continues to evolve. More and more measures have

been taken within the eurozone to shore up the euro, and some of

those, the dangers is, dangers are, may apply to Britain, and yet

Britain can be easily outvoted because it is not a member of the

eurozone, it constitutes a majority, so we need at the very least to see

measures taken for the euro, that have no relevance to us do not apply

to us, so that is a minimum thing. I don't think there this is just about

economic, I really do think the central question is actually about

the reverse built of legislation, making things responsive so what

electorates want. Do you think it is achievable? There are two things you

can do. One you can have a red card system where national Parliaments

say this soul not pass f you get more than one or two. Secondly a pet

idea of my own, I think European legislation should all possibly have

a sunset clause, it should be time limited, so that it has to come back

to Governments, come back to national Parliamentments. That is

the wish list. It is whether that can be renegotiationed. I agree.

Your report is supportive of the Prime Minister's position, Shetland

out a list of seven things hat the weekend. Are you happy with each

one? New controls to stop vast migrations? The overall picture is

very positive. Specifics though? What Norman says about sunset

clauses I agree. I think we should do that in the UK as well. What we

need is we need to have this debate. The Germans are very very interested

in what David Cameron is saying, and is listening and responding

positively. But not interested as Angela Merkel said in actually

reversing treaties or having complete wholesale change to push

them through. I am sure it matters to us, what we need to see is we

need to see a more ambitious Europe in terms of external trade, the

economic opportunities. Let us talk about that specific, vast migration,

do you agree with him, there need to be new controls to stop vast nigh

integration, presumably from new member states to established ones

That would be something common. We have the controls over Romanian,

Bulgarian, the Polish situation, we were one of the few countries who

didn't put control, we have to look at them in terms of what creates and

sustains those economies if they come into the EU, what we don't want

do is be a brain drain any way. You can't, the Government can't hit

immigration target, not because of new states, but because of the

existing EU member, you accept that? What we are doing is putting in

measures that curbing immigration, we are not... Not EU. You can't do

anything about it. When he talks about new controls, he can't do

anything about the existing member, that is true. That is where we are.

He continue control a vast part of the migration. It is about being

honest. I think those are things that David Cameron is talking about

into the future, when we look at new, if there are going to be

accession country, it is far away, as a proposition. Do you think David

Cameron is a Europhile or Euro-sceptic? I think he is a euro

realist. Like Margaret Thatcher. The point is we have a voice in Europe.

Any Prime Minister who wants to reduce their voice in Europe would

find, would not be working in Britain's interest. Do you agree

with that? I hesitate to disagree with anything Laura says. Do. I do

slightly. I would say about David, David as you may recall used to work

for me, he used to write my speeches and I know he is Euro-sceptic.

Right. Then that has put settlement to that argument. We are hear to

persuade him. Thank you. The referendum on Scottish

independent is six months away today. But what does it mean for the

outlying regions of Scotland, in particular OK anyand the Shetland

Islands? There have opinion called for greater autonomy. The shelters

are a famously independent bunch, with many claiming to have more in

common with Scandinavia than Scotland. In the Shetland village of

Gulberwick hundreds of locals lit flaming torches to burn a especially

built Viking long boat. It is one of a number of fire festivals that

Shetlanders stage annually. Shetland is different from

everywhere in the world. We do Viking events, we sell Brit it every

year, and that is what we are here today doing. And by fortunate

coincidence our guest of the day Norman Lamont was born in Shetland.

Joining us from Shetland is the Vic Scot. What do you see as Home Rule

for Shetland and OK anyislands? We want to make sure out of this big

constitution at be bait we decide what we want. Edinburgh doesn't pay

much attention to the island, the SNP have removed powers from all the

Scottish islands over the past seven years while they have been the

Government. Therefore, in this period, we are going to make sure we

decide what is in our interests, and I think that includes a range of

economic and social powers where we feel we can better take decisions

about our future than having them imposed from Edinburgh. How would

you do that? Well will work out some plan, there is a positive, our

islands future initiative being taken forward, and they are looking

at the kinds of powers we would like to see in Lerwick, and Stornoway and

we will do that in a positive way. We will challenge both the UK and

London and Edinburgh Governments to respond positively to that, because

if we don't make our case, if we don't shout loudly about what we can

do, they don't take any notice of us. We have been negotiating with

the oil industry for the last 40 years with some success. Norman

Lamont, if your experience, have these islands being treated badly,

are they doing badly as a result of having self devolution in Holyrood.

Can I say hello. I hope the island is looking beautiful, as it always

does. I think what he is saying makes a lot of sense, that the

islands could ask for more autonomy in the event of Scottish

independence, that is what the Faroe Islands have, what the Channel

Islands have, but the Faroe Islands are part of Denmark but at the same

time have more self rule, more control over the Home Affairs. Of

course as he knows better than I, there is a degree of control over

the oil development that Scotland, Shetland has, it has special powers,

it benefits from the oil revenue. The ironic point in this, a large

part of The Verves of oil that Scotland say -- the reserves of oil

Scotland have becomes because of the position of Shetland on the map. If

Shetland declared independence, if it declared complete independence

Scottish oil would go out the window. How much claim do the

Shetland and Orkney islands have? We have some claim to the oil reserves.

We can find the odd constitutional lawyer very happy to make that

argument. Lawyers did so back in the 1970s when Scottish local Government

was reorganised and when oil was discovered. We can have that again.

The real point about oil and gas is that the developments West of

Shetland are really important to the UK Exchequer. Alex Salmond does not

have an economy of oil and gas does not happen, which gives Shetland

some leverage over those negotiations, which Alex Salmond

would happily not concede to us in any way whatsoever. And that is the

point. And we are not arguing for independence. Territorial waters are

defined as the midpoint between the outlying coastal points. If Shetland

were not part of Scotland, a large part of the Scottish oil reserves

would go. I am not suggesting this is what Tavish Scott is advocating

or that it would be likely to happen. But it illustrates the

fundamental selfishness of some of the arguments put forward for

Scottish independence. They are saying, we have got this oil so we

can run off and do what we like and make ourselves wealthy. Someone else

could run off and make themselves wealthy. But they are carrying out

negotiations already with London and Edinburgh probably to get the best

deal. Yes, and we have done that over many years. It was said in the

1970s that the leader of the then County Council was the only local

Government leader who could walk into the Scottish Secretary's office

in Whitehall and get a meeting. Funnily enough, that could be

repeated in due course! All right. Thank you.

Here at the Daily Politics we rarely ever stop thinking about the big

questions. Where is the Higgs boson? If a tree falls in the forest and

no-one is there to hear it, does it make a sound? Whatever happened to

Friends Reunited? But the one that's been bothering us this week is what

exactly is the output gap? Economists largely agree it's a

crucial way of judging the state of the nation's economy, so we thought

we'd better send Adam off for a mental work-out.

Apparently this place is called a gym. And I am told it is an

excellent place to explain one of the concepts for measuring the

fitness of the economy. And that is the output gap, which is the

difference between where the economy is now, and where it could be if it

was firing on all cylinders. A bit like the gap between me and them.

And this is why it matters. If the output gap is closed and the economy

picks up as much pace as it possibly can, but the Government still can't

raise enough revenue through things like taxes, then we have got what we

call a structural deficit and the coalition has pledged to eliminate

that. So the output gap is a pretty major element in any Government's

economic calculations. This calculation uses this equation, and

this equation. Or we can use another method. Whatever that is! Put it

this way, it is tricky. Like measuring my biceps, something that

does not exist in the real world. Though there are very different

opinions about how big or small the output gap is, meaning people of

different political persuasions can use it to sell their particular plan

for getting the economy back to full health.

Joining me now is the crossbench peer and biographer of John Maynard

Keynes, Robert Skidelsky. Welcome. Before we get onto the output gap,

do you maintain that the coalition's austerity programme was

unnecessary and has done permanent damage to the economy? I do. I think

the big giveaway here is the Chancellor's consistent failure to

meet his Budget targets. He has failed to do that and you should

have been borrowing 60 billion by this point. He is having to borrow

over 100 billion and moreover having to increase the cuts to meet its

revised targets by about 60 billion over the next four years. That is

failure to me. The argument would be that without austerity and the plans

to make some cuts, we would be in a worse situation. Of course you can

always argue that but to my mind his whole strategy was based on the

wrong theory of economic policy, which was that the cuts would cause

the economy to grow faster than it did. That is why essentially it has

not grown faster than it did and he has failed to meet his targets. What

do you say to economists looking at this Budget, looking at here of

austerity to come, the fact we still have a vast amount of spending cuts

to go according to the Chancellor, and that he has missed his targets

and we are not going to have a balancing of the books until 2018.

He was wrong. Austerity has choked off demand in the way Labour said

and he has not done what he promised. I don't think that is

right at all. The fact is we had a huge crisis which led to an

extraordinarily large annual deficit, 12% of GDP. It was not open

to a Government in that situation with a deficit of that size and the

national debt is exhilarating to go in for a traditional, as Robert

would see it, came the solution. -- Keynsian solution. This has been a

gradual process and that is why it will extend beyond the next

Parliament. But the benefit is that the British economy is now

recovering, despite the fact there was a huge black hole. If you want

to see austerity, look at the eurozone. The cuts were real cuts.

Civil servant salaries were not restricted to a 1% increase, they

were actually cut. Pensions and benefits were cut. Where it has been

too severe, I would argue, and I agree with Robert's analysis

partially, if it is applied to the eurozone. But George Osborne has

quite rightly judged it as a gradual process. You don't think you should

have gone further? He got it right. Then why did he set himself those

targets? It is all very well to say my approach as to be gradual because

of the issues we have inherited and so on and because we know what the

effect of the economy will be on to drastic measures, but then why say I

will achieve these targets over this period of time when he has

completely failed? He has failed to achieve them. He accepts that. That

is why he lengthened the period. The major reason that the period of

consolidation had to be extended out was because of the sharp

deterioration in the condition of the eurozone. At the very beginning

of this crisis for the first couple of years, the eurozone was saying it

wouldn't affect us. The problems of America and the Anglo-Saxon world

don't apply to us. Then it suddenly hit them and it has had a huge

knock-on effect on our exports and economy. That is the major reason

for the extension of the time period. There was no double-dip

recession in the end, as was widely predicted. Triple the recessions

even. Unemployment never reached those higher than predicted levels.

It was not as bad as Labour said. The Budget projections were based on

estimates of economic growth over 2011 and 2012, which just didn't

happen. In fact we flat lined for two years. I would say that was

partly the result of the austerity policy. We haven't got much time but

on the output gap and spare capacity, the worry for some

economists is that we are close to capacity, and in other words the

structural deficit, the bit that will not disappear even if we have

continued growth, is far bigger. Do you agree? The output gap concept is

tricky. The Office for Budget Responsibility reckoned it was about

2.2%. That is the gap between actual output and what we could be

producing at full employment. I think that is tricky in this way. It

is an average. I think the country doesn't have the same output gap in

each part of it. In fact I think London could be overheating. The

North East has a larger output gap. That poses a challenge for policy

because policy is very blunt on these matters. You have a one size

fits all interest rate. And you don't differentiate in fiscal policy

between different regions. I think we have to rethink this. We have big

output gaps in some parts of the country and zero in other parts of

the country. How do we deal with that? I can't answer that but thank

you for explaining it! It's said to be one of Whitehall's

toughest briefs, and as Chancellor few things are more nerve-wracking

than Budget day. The wife of one former Chancellor described it as a

little bit like having a baby. So how do they calm their nerves? Take

a look at this. As you offer the media one last photocall, they will

now be assessed by what you plan to drink during your long Budget

speech, the one occasion in the year when alcohol is allowed in the

chamber. One of his minders had already asked Geoffrey Howe what he

wanted. I say probably some gin. He said, what, neat? Thank goodness he

asked the question because I would have been lolling flat over the

dispatch box! I chose whiskey. The parliamentary secretary is expected

to lay on the whiskey with some water. One reason was because of the

Scottish whiskey association, which was one of the most persistent and

attractive lobbyists of me in the run-up to every Budget. I always

drank a moderate amount of lunch -- at lunch. I had the white wine

spirits up. Orkney whiskey with Highland water. Water with a dash of

brandy. Everybody is obsessed with what they used to drink. That was a

clutch of former Chancellors ending with Nigel Lawson, Norman Lamont and

Denis Healey. I am joined by Kitty Ussher, former Labour Treasury

minister who now works with Tooley Street Research. Was it an enjoyable

ordeal? Or just an ordeal? Something you are on autopilot for. As you

deliver the speech, and maybe there is snorting and shouting here and

there, you think, they didn't notice that. That didn't go down too badly.

What will be the reaction to the next bit? You outside yourself,

watching yourself, because you have rehearsed it so many times in your

mind. A surreal experience. Will you, different circumstances. You

worked for Alistair Darling when he was Chancellor just before the

banking crash. What was that like? Quite intense. We had some days when

we were a few hours ahead of the market and making tentative choices

at the beginning of the day that were implemented by the afternoon.

It was a time of extreme focus. Panic? Not quite. In Alistair

Darling's memoirs he said there was one moment when he considered

panicking but because he is such a stable personality, I think he was

the best possible person we could have had in that place at that time.

And what about the run-up to Budget day? By the day before, it is

execution mode. Not everybody knows everything that will be in it but

you are talking about who is ringing whom and doing what media and

rehearsed -- rehearsing the speech. I suspect the Chancellor will be

locked up with his closest advisers and making sure he knows his speech

well enough to go into the autopilot you have described. Sometimes the

most unexpected things happen. I remember on one occasion Nigel

Lawson was delivering a Budget speech and there were some pages

missing! He just carried on. Then suddenly one was conscious that he

was ex-temporising. There was a flurry on the backbenches and

suddenly from the box where the civil servants were sitting a whole

lot of pieces of paper came along. The whole House cheered when he

finally got them! But Nigel did a great job of ex-temporising and then

returning to the script. One of the things with a Budget, you have to

stick to the script. Do you? The detail on tax is being watched by

accountants, lawyers, will be carried into law. You can't say this

tax will be raised at 20% when it should be 15. That would not go down

well. And the real deadline is the printing of the documentation, which

is probably happening right now and you cannot make any decisions after

that. That is it. From all of us, goodbye!