Chuka Umunna - UK Shadow Business Secretary HARDtalk

Now on BBC News it is time for HARDtalk.

Here is the good news. The Greek election did not plunge Europe into

economic and financial meltdown. The bad news is that no-one in

Europe believes the combined currency, banking and sovereign

debt trauma is over. Right across the Continent politicians are

struggling to answer a question. How does Europe find a way back to

sustainable economic growth? Today my guest is the opposition Labour

Party's top business spokesman, Chuka Umunna. He says active

government cannot revive and reshape capitalism. Our business

leaders or the public ready to Chuka Umunna, welcome to HARDtalk.

Good to be with you. Any economic discussion of any country in Europe

right now has to begin with the context of the eurozone crisis,

what it means for individual nations. The Governor of the Bank

of England calls it a very big dark cloud hanging over the British

economy, the world economy. Do you agree? I think so. I think it

presents a number of challengers for us as a country. Our bands have

a degree of exposure to European sovereign debt. What happens in the

eurozone affects business confidence in this country, with

most of our exports going to the eurozone. And of course if we do

not resolve these issues then businesses will not be confident to

invest in particular. So you would accept the proposition coming from

Chancellor George Osborne that in the end the eurozone crisis is very

much constraining what can be achieved in terms of the British

economy? He says the recovery is being killed by what is happening

to our neighbours. Do you accept that? The recovery actually in the

UK is stalled really in the early stages of this government. We have

seen the economy contract by 0.4% since the Government announced its

spending review plans for the duration of its term in government

in October 2010. But I think it is fair to say that for some time we

have seen no growth in the economy. I am getting to the point that the

Chancellor says, and it sounds like you agree, that given the enormous

difficulty posed by what is happening to our near neighbours,

our biggest trading partners, it is very difficult for the economy of

Britain to grow. It was our exports to the eurozone that kept us out of

recession in 2011. We have yet to see the full effect of the eurozone

crisis feed through to our economy. It is was to think of the fact that

we're in a double dip recession in the UK. France and Germany closely

missed going into recession. The point is the argument that we have

made as an opposition in the UK is that you need to provide solid

foundations to withstand the storm when it comes. The problem the

Chancellor has... He is right in saying the eurozone will affect our

economy... But he has put us in a very poor position in terms of

withstanding that storm when it comes. It is hardly a poor position

to be a AAA rated No nation by all of the agencies when so many others

across the European Union are not. It is a sign of the confidence that

international markets still have in the UK economy as run by the

Conservative-led coalition. The G20 is meeting this week. The only

other country had has experienced a double-dip recession is Italy. The

situation in the UK at the moment is unemployment at 8.7%. We have

over 2.6 million people out of work including one million young people.

You are sidestepping my point. There is a fundamental point when

we are looking at Europe, Britain's place in Europe, about conference.

Britain has retained the confidence of not just the bond markets but

also of people like Christine Lagarde and the OECD. -- confidence.

They all say that Britain's current fiscal situation makes sense and is

the right direction to be travelling in. It's I am not sure

that is the position of the IMF. One thing that fisting the guards

said is that in order to have a credible fiscal policy unit growth.

We have not seen roads for a long time. If you look in the overall

context of the UK's historically, we have had historically low term

borrowing rates. We benefit from the fact we control our own

monetary policy. We can have a policy which is more appropriate

for the UK economy. But to argue to your average person in the street,

in my constituency in London, that somehow we are in a safe situation,

that is not what it feels like for people at the moment. But what

matters is of course what people feared on this -- feel on the

street, but also what the bond markets can do two countries. You

only have to look at what is happening to Greece, Spain,

Portugal, to know that it matters to retain confidence. One point is,

this government has retained confidence. When you criticise so

heavily as you do in your party the Government's current fiscal

policies, it is not worth bearing that point in mind? Firstly I would

say that it is a fallacy to compare us to Greece or these other

countries. They don't have control of their own monetary policy. Also,

the term of payment on their debt is often shorter than ours, which

is an average of 13-15 years. Secondly, in terms of retaining the

confidence of the markets, several of the credit ratings agencies have

put us on negative watch during the last few months. The big worry

about people have about our economy is the prospects of future growth.

Because the growth forecast for our country has come down, more people

are out of work. The Government has had to revise up its borrowing

estimates by over �150 billion. That in the long-term will create

worries in the market about our ability to repay a debt. I don't

think any in the current government would argue that this is the place

they would like to be in. They happen to be in. They would argue

about what is happening in Europe. But if we get to your

responsibilities in politics, which is to represent the Labour Party

when it comes to finding a strategy for growth and business growth in

this country, is it not true to say that the most important single

thing you need to start off with his confidence? Yes. Without

wishing to rehash the Arden, if confidence is there right now,

George Osborne does have the state to begin to pull some rivers, to

put more money to the economy, to guarantee to business that he has

business from the infrastructure based prospects. He is in a decent

position, isn't he? The first thing to say that is since he announced

his spending plans for his time in office in this Parliament,

confidence nosedived. That has had a knock-on effect on demand. In the

last few days he announced plans to put new liquidity into the banks

and threw them into small businesses. Is talking about �80

billion worth of cheap money. think you are referring to the

funding for lending scheme. That is an admission of failure of the

different things he has announced up to this point. We were told in

2011 that the Government's Project Merlin accord with the big bangs in

the UK would get lending to our small businesses. We have seen a

net contraction in lending to small businesses in this country. There's

a big problem there. Project Merlin did not work. He then introduced

credit easing. Unfortunately the problem with that... It is not bad

necessarily... But it is reducing the cost of borrowing but it is not

getting money out of the door to profitable businesses not able to

access fineness of the mind. That is the problem. This is the reason

we have seen the recent announcement by the Bank of England

and... That is right. Do you welcome that? It is potentially a

huge injection, �80 billion, and if it works well it will get a lot of

liquidity into small and medium- sized enterprises. I wanted to work.

I hope that given the failures of the past these measures will work.

We will see over time their effectiveness. But I want them to

work. The key is, will it get money to businesses that cannot access

finance at the moment, as opposed to simply reducing the cost of

borrowing? You also think that the other measures are a step in the

right direction? Planning restrictions eased for construction

companies. A national infrastructure plan which is

designed to get pension funds to put money into the capital projects.

We have also had things like tax breaks for the hi-tech audio-visual

sector. The Government now Boban -- the government appears to be many

of the things that you wanted them to. It is doing some of the things

we called for. You referred to the video games tax relief that we

introduced in government which has helped port bow video games

industry in a place where it is one of the best in the world. When the

Government came into power it scrapped it. It admitted it made a

mistake. That is a good thing. is not about point-scoring. We are

one economy in recession amongst eight Continent in a deep hole. I'm

sure that you would agree it is not a time of point scoring, it is

finding the best strategy so the Government and productively help

business to grow into it -- in a way it has not grown in the last

five years. Whatever you call it, the current government seems to be

turning the wheel a little bit toward a more expansive policy. It

seems to me that is something you ought to be welcoming. It is still

refusing to change its basic fiscal position and go for a more

responsible, and Escrick, less a deeper deficit reduction programme.

That would actually allow the economy to grow. In terms of the

recent things we have heard which suggests they are moving towards a

bit more of an expansion attitude, that is to be welcomed. The point

is, look at the gravity of the situation we're faced with. Two

quarters of negative growth. Many economists predict that in the

second quarter of this year we will also get a negative figure. We need

the Government to be doing a lot more than it is at the moment. I

think that this speaks to a wider debate which is going on around the

world about the proper role of government is to be the private

sector and the extent to which they should work in partnership. There

is an old retro view that says the best thing government can do is to

simply step aside. If you like that is the orthodoxy of Ronald Reagan

and Margaret Thatcher. He should step aside and let the market to

the world FT -- do the work. Another opinion says, actually,

there are many things the market cannot do. It does not

automatically and naturally operate in an entirely efficient way. It

cannot provide strategic direction for particular national economies.

It cannot identify where you have got a competitive edge and a

comparative advantage. So you need government to work in partnership,

not in a kind of pop down overbearing way with business, but

in partnership with business to grow business. That is what has

happened in Singapore for example, Germany. It has a national

architecture with it. Indeed,... did not happen under the dozen

years of the Labour government, but you argue it could happen now?

is right. We have to be humble enough to say, yes, we got lots of

things right in government. When we left them that we were racked by

the World Bank as the fourth best place in the world to do business.

But we should have been prosecuting active industrial policy is far

earlier. The important thing is... Active government strategies, you

say. How does that fit with Ed Miliband's key speech where he

introduced the idea of defining the private sector as essentially full

of good businesses and bad ones? Worth while producers, or creditors,

he said. Is it the case that Ed Miliband led Labour Party policy on

business is to try to reshape the nature of the private sector, to

stamp out predatory capitalism and simply encourage those that are

defined in your terms as the work while producers? I would not quite

put it that way. That is the way you put it. Let me answer your

question this way. What we are actually looking at here, and you

are talking about the subjective politicians... A politician's

imposing a subjective view. But we should be led by business. What

we're talking about is, what are the business practices, models,

behaviours that are successful? What is the consensus view within

business on that? There are lots of The British Chambers of Commerce

said that in response to this view of capitalism, all organisations

that create wealth and comply with the law are by definition a good

companies. Do you accept that? not disagree with that. But do you

agree or disagree with that simple concept about what makes a good

company in the UK I would not necessarily... That would not be my

comprehensive definition of good business models and behaviours. Let

me explain why. There is a question as to whether you are delivering

value in the long-term or whether you are just looking at increasing

profits in the short-term. The quick buck, if you like, in stead

of long-term fund new creation. I have spoken to him about this and

there is a lot of common agreement. If you look at the different

practices and behaviour models that work, they are businesses that

found you and invest in their workforces. If you have a happy

workforce you will have less absenteeism and poor productivity.

This is not necessarily what politicians are saying but this is

what businesses are saying. This is highly subjective. Any future

Labour government is going to have to go into every company and decide

whether it has a happy workforce or whether it is doing things in a

socially responsible way? How are you going to do this? There is a

degree of subjects to the sea but if you look at what businesses are

saying, if you go on to the business page of Google, it says

people are their greatest asset. They are all sorts of Fraser's.

There are many businesses that look at people as simply a cost to be

reduced. I doubt they say that in their brochures which you read. The

point is, you are quoting a Google and taking at face only what they

say. Any company these days issues the right sort of words about

corporate responsibility but I first wonder how in government,

Labour government is going to make sense of this notion that we have

good capitalism and Bad capitalism, this is his you want to promote and

businesses you do not want? -- businesses. If I could finish, I

was talking about investing in people and investing in a long-term

sustainable value creation. We need to recognise the activity that is

this carries out its fresh and tensions on the community in which

it is carrying it out -- business. If it gets it wrong, in the US for

example, it does not only have adverse consequences but it also

could have harmful effects on the population. You ask, what do you do

as policy makers? I say they are a range of levers that we can use to

encourage that which is good. Good business practice. That is

successful, which helps provide more jobs. There are a number of

things we can do. We can use the tax system. In government, we

introduced capital allowances to encourage businesses to invest in

plant machinery and the things that help them grow their companies in

the long-term. Yes. You can use recruitment. The government in the

UK is one of the last as purchases of goods. If you are getting a

service from a contractor, let's ask the contractor to help the

skills of the economy. There are a number of things you can do to help

foster good business behaviours. You have learned that many

interesting ideas. Let's put one practical case to you. One of the

most successful British companies recently, has been WPP. In recent

weeks they have run into a few problems there is a promise to pay

the chief executive an enormous sum of money in terms of renumeration

for the last few years, �30 million or so. Shareholders voted against

it. You have spoken loudly against excessive corporate pay. In your

view does this make this company a company that is behaving in a way

that is unacceptable? No. What we have seen happening across the

board in different companies, we have seen unprecedented levels of

shareholder activism and engagement in their companies. This happens to

be in the issue of renumeration. This is not a reward for failure.

He has pointed out his global competitors, the huge US companies

and others, that they give their chief executives more than he has

been given. So this is not about success or failure. You are talking

about the government intervening in stopping in what you regard as

excessive pay. The judgement that needs to be made has to be made by

the shareholders, those that control the business. In 2011, the

shareholders sustained a loss on their stock and therefore took the

view that increasing the pay on the chief executive at that time or

above 60% was not something they thought was the right thing to do.

It is not right for me to go around and dictate to individual companies.

What hope will say is that it should be an issue for the

shareholders. -- 5. In terms of the quality and differences between

what the chief executives get and the rest of society, if we do not

get this right it could be bad for business. Perverse pay structures,

and I know this because I used to be an employment lawyer myself,

promotes the wrong kind of decision making. People have to be in the

driving seat. That is why shareholder activism we have seen...

All right, let's just one -- think of one link, the top tax rates.

Businesses have sued because the Conservative government has cut the

top level of tax from 50p, imposed at the end of the last Labour

government, to under 45 P. Would you or any future government want

to be part of a government that guarantees the raising of the top

level of tax? What I would say is that I would like to be part of a

government where we are implementing policies that ensure

the broader shoulders bear the heaviest burden. Should you go back

to 50p? We have said if there is a lectern in the next month, which I

hope so, although the election is scheduled in 2015, then we would

reverse the decision the Government has made to bring down the top rate

of tax. Why not go further? One way of thinking about the soul of the

Labour Party is thinking about France. Cons of Holland is the new

president of the Socialist government. He has promised a high

rate of tax for top earners. Why is Labour not taking on a more radical

few of the share that the top earners should pay? That is

something we have to be appropriate in our policy. But you are not

dissimilar in economic terms. Why are you not taking on some of his

ideas? I am not necessarily just with one system. I am interested in

the outcome. The top rate of tax of 50p is the only way that you can

insure the ones with the broader shoulders can bear the heaviest

burden. You have to make a decision when we get a general election to

what we would do at that one. So it could go beyond 50p? I cannot see

us having a top rate of tax in the region of 75p, certainly not. That

is not something we are going to be making policy on now because it

would be irresponsible. We have to look at the Policy Programme at the

next election. We want a fair society. One name that has not crop

up much of his conversation -- is Tony Blair. He has said that we

have even lost our backers, and we do not have feelings we have with

is this any more. He expressed deep concern. Are you also concerned?

major business person came up for Labour in the last election. As

somebody who has advised businesses during my professional life, that

is a matter of regret. Tony Blair is right, we have to rebuild that

trust in the business community. The starting point in us having an