:00:03. > :00:08.Pakistani troops inside Indian territory on Tuesday. Pakistan
:00:08. > :00:11.denies the incident even happened. A senior US State Department
:00:11. > :00:15.official says it is in the interest of his country that Britain keeps a
:00:15. > :00:25.strong voice in the EU. He also expressed concern of the prospect
:00:25. > :00:35.of a referendum. He said they often turn countries inwards.
:00:35. > :00:36.
:00:36. > :00:40.Halfway through its parliamentary term, Britain's Conservative-led
:00:40. > :00:45.coalition government has a growth problem. The economy is flat,
:00:45. > :00:49.possibly heading for a triple dip recession. But how does a
:00:49. > :00:55.government committed to fiscal austerity wrap things up? My guest
:00:55. > :00:58.is Lord Heseltine, the former deputy prime minister, who was last
:00:58. > :01:03.year commissioned to come up with a growth strategy on a range of
:01:03. > :01:13.issues from economic management to Europe. Art today's tory leaders
:01:13. > :01:34.
:01:34. > :01:39.ready to heed this voice of Lord Heseltine, welcome to HARDtalk.
:01:39. > :01:43.Nice to the back. You were very frank in a report on growth that
:01:43. > :01:47.you wrote for prime minister David Cameron last year. You said the
:01:47. > :01:52.government urgently needs to develop a strategy for growth and
:01:52. > :01:57.wealth creation. Do you see signs that they had heeded your message?
:01:57. > :02:01.The response from the Chancellor and the prime minister has been as
:02:01. > :02:06.encouraging as I could expect. Not only have they welcomed it and said
:02:06. > :02:10.nice things but they have also said that by the Budget time in spring,
:02:11. > :02:15.they will do a full response. On the single biggest recommendation...
:02:16. > :02:21.You did say it was urgent. That did not sound like an urgent response.
:02:21. > :02:27.For the government to absorb BT9 recommendations and said they will
:02:27. > :02:30.respond is pretty good. -- 89. They have gone further than that. They
:02:30. > :02:33.said on the principal recommendation, which is that we
:02:33. > :02:39.embrace the enthusiasms of Britain's provinces and get them
:02:39. > :02:42.more involved in the process, they are going to move the timescale to
:02:43. > :02:47.what I recommended and start financing it from April. I come
:02:47. > :02:52.back to the point of urgency, given the state of the economy, which is
:02:52. > :02:56.flatlining, it does not seem very urgent to take onboard your main
:02:56. > :02:59.recommendation, to put a lot of body that was going to be sent --
:02:59. > :03:05.spent by central government in two cities and regions, but only begin
:03:05. > :03:10.to make that happen by 2015. That doesn't seem terribly urgent.
:03:10. > :03:16.as quick as you can do it. This is capital money and the availability
:03:16. > :03:21.of that capital money will not free up in the economy until about 2015,
:03:21. > :03:28.because it is now already committed in terms of contracts which have
:03:28. > :03:31.been met and negotiated. There is not a short-term fix. The
:03:31. > :03:35.introduction to this programme talks about Britain's lack of
:03:35. > :03:42.growth. What is happening in the principal markets? China and India
:03:42. > :03:48.are slowing. Slowing from double digits... They are slower than they
:03:48. > :03:53.were. The opportunities are smaller. Europe is flat mining. America, --
:03:53. > :03:57.cliff edge. Anybody who says there is no opportunity is deceiving. We
:03:57. > :04:01.have a world economic crisis. -- there is plenty of opportunity.
:04:01. > :04:05.What this government is doing and what I have accepted they should do
:04:05. > :04:10.is recognise there is no more money. We know that. We have to use what
:04:10. > :04:14.we have got better. It is broadly capital investment. Most of the
:04:14. > :04:18.available money is already committed. It does not start being
:04:19. > :04:23.available until about 2015. But you have a plan and so you start
:04:23. > :04:28.planning this year to how you use the money more effectively, when it
:04:28. > :04:32.is available. If the economy is an ocean liner and it takes time to
:04:32. > :04:36.turn into round and put it in a better direction, does that mean
:04:36. > :04:40.that in the short from the people of this country should expect this
:04:40. > :04:43.sort -- this sub-zero growth or even the possibility of a new
:04:43. > :04:47.contract have to take place? Are you saying there is nothing the
:04:48. > :04:53.government can do to avoid the triple dip? They can do a lot,
:04:53. > :04:57.which they are doing, which is to address the fundamental problem of
:04:57. > :05:03.too much debt. You need to pay down the debt and until people have done
:05:03. > :05:06.that, they will not be an escalation of comfort. Surely they
:05:06. > :05:09.have to Gillett -- get the balance right, of addressing the fiscal
:05:09. > :05:15.problem and adopt a management of the economy that encourages growth.
:05:15. > :05:19.Of course. Is the balance right at the moment? They are changing it.
:05:19. > :05:23.Of course they would not have asked me to do the report if they thought
:05:23. > :05:27.it was all right. But to be clear, we are not talking about the
:05:27. > :05:32.creation of this government, we are talking at the least about the
:05:32. > :05:35.inheritance of this government. But it is more serious than that. It is
:05:35. > :05:40.about the way we manage this economy over decades. If we start
:05:40. > :05:44.looking at the wheel inhibitors to group, not the simple headlines
:05:44. > :05:50.that if false impressions, but the real inhibitors about changing
:05:50. > :05:54.education standards, making skills available, you can't do that except
:05:54. > :05:59.in the medium to long-term. This government has embarked on that
:05:59. > :06:03.journey. In every recommendation I made, broadly, I am saying the
:06:03. > :06:07.government go further and faster. What I am not saying he's changed
:06:07. > :06:10.direction. I am interested in if you are self -- philosophical
:06:10. > :06:16.underpinnings of your message. seemed to have a deep suspicion of
:06:16. > :06:19.the ability of central government to understand and -- understand how
:06:19. > :06:23.to stimulate the economy in all of its perversity, the different
:06:23. > :06:28.regions and cities of the nation. You seem to suggest the only way to
:06:28. > :06:33.do that is take a big chunk of money, up to nearly �50 billion,
:06:33. > :06:37.and take that out of the hands of central government departments and
:06:37. > :06:42.put it in the hands of councils, local business leaders, enterprise
:06:42. > :06:46.partnerships and have then make the spending decisions. That is of
:06:46. > :06:51.course how we made this country, if you think about where the greatness
:06:51. > :07:01.of Britain came from. It came from local leaders, industrial leaders,
:07:01. > :07:01.
:07:01. > :07:06.the gears with their feet on the ground and local experience. Can I
:07:06. > :07:10.explore the words you just use. They are the secret behind it all.
:07:10. > :07:18.I am doing an exercise in Birmingham to look at the detail of
:07:18. > :07:23.this particular option of going much more local. I have got the
:07:23. > :07:27.chief executive of the John Lewis partnership and wheels of local
:07:27. > :07:30.authorities. I have got the vice chancellor of one of the
:07:30. > :07:34.universities. -- leaders. I have a senior accountant in the Midlands
:07:35. > :07:38.and outside help from very experienced industrialists. That is
:07:38. > :07:43.the local way of looking at the auction. You quite rightly referred
:07:43. > :07:47.to central government. What could be the alternative to this local
:07:47. > :07:51.team? It is an official in the Department of Housing, an official
:07:51. > :07:54.in the Department of Transport, an official in the Department of
:07:54. > :07:58.Agriculture. In other words, functional monopolies in Whitehall
:07:59. > :08:03.of officials. Most of whom have never had experience of creating
:08:03. > :08:08.wealth in the first place. That is the choice. It's a fascinating
:08:08. > :08:13.choice. I can't help remembering, as you tell me about this, that you
:08:13. > :08:19.have served as a national British politicians, working with Whitehall
:08:19. > :08:22.in the civil service, for many decades. -- politician. He rose to
:08:22. > :08:26.Deputy Prime Minister after many years in Conservative government. -
:08:26. > :08:29.- you roos. It seems you think there is something fundamentally
:08:29. > :08:36.dysfunctional about central government and its call role in
:08:36. > :08:41.managing the economy. I agree with that. -- its core role. We are
:08:41. > :08:45.grossly over-centralised. Unlike any other advanced economy in the
:08:45. > :08:50.world. If you think about Germany, the Department of France, wherever
:08:50. > :08:55.you look, the work of local economic strengths and build on
:08:55. > :08:58.that. We take all of the decisions to London and impose solutions. Not
:08:58. > :09:03.solutions for Birmingham or Manchester or Leeds but solutions
:09:03. > :09:08.for the local roads and housing, for the local this and that. There
:09:08. > :09:11.is no other economy thinking it can manage the centre as dynamic -- at
:09:11. > :09:17.dynamically as building on the strengths of the local economies.
:09:17. > :09:21.But maybe the difference is that in Germany, for example, there is a
:09:21. > :09:26.much more well developed tradition of making key decisions at a
:09:26. > :09:30.regional city and local level. Take one example of why perhaps Britain
:09:30. > :09:33.is different. This government, the Conservative Party of David Cameron,
:09:33. > :09:40.has tried to push the idea of spreading elective neighbours
:09:40. > :09:46.around the country. Getting all of England's cities to have their own
:09:46. > :09:50.ears. The idea was rejected by nearly all cities. -- Mails. Many
:09:50. > :09:53.have them now, many of the different police districts, but
:09:53. > :09:58.only after an election process which was pitiful, with a turnout
:09:58. > :10:03.on average of 15%. There is not a tradition in this country of making
:10:03. > :10:08.key decisions at local levels. agree. That is half the problem
:10:08. > :10:12.because over decades, over probably about a century, we have sucked the
:10:12. > :10:16.decision-making out of the local communities and told them what to
:10:16. > :10:20.do. Now, all over this country, people are saying, what does London
:10:20. > :10:29.want us to do? Can we get permission for this? Will they
:10:29. > :10:32.finance that? That is installed a fine psychology. We began by
:10:32. > :10:36.talking about the urgency to inject a stimulus into the car economy.
:10:36. > :10:41.You are talking about systemic changes in the way we run ourselves
:10:41. > :10:45.as an economy, which will take decades to unfold. Here we are,
:10:45. > :10:49.still sitting with an immediate economic challenge. Isn't that the
:10:49. > :10:53.reason why central government needs to do the pump-priming of the
:10:53. > :10:57.economy now, which you seem to be avoiding? There is the phrase,
:10:57. > :11:02.there is no money left. That was the outgoing Chief Secretary in the
:11:02. > :11:06.last administration. There is no money left. All the posturing of
:11:06. > :11:09.politician saying do a bit more here, spend more there, it will not
:11:09. > :11:14.happen. There is no spare money. The only option is to use existing
:11:14. > :11:18.money more effectively. We have talked about regionalism. There is
:11:18. > :11:23.another way in which your ideas run up against counter trend inside
:11:23. > :11:28.your own party. You want new powers for these local enterprise
:11:28. > :11:31.partnerships. Some would call goes quasi non-governmental
:11:31. > :11:36.organisations which the current Cameron government has pledged to
:11:37. > :11:42.put on the bonfire. They want to get rid of that. They created these
:11:42. > :11:46.people. What they are these basically the strength of them is
:11:46. > :11:49.the local authority, maybe a combination of local authorities.
:11:49. > :11:54.But the big resource is within the local authorities. The difference
:11:54. > :11:59.is that this government was brought -- has brought in the private
:11:59. > :12:02.sector as partners. Renewed talk about accountability, there are two.
:12:02. > :12:07.No crime can come from the left without the local authority, which
:12:07. > :12:10.is democratically accountable, being a partner. A decision can be
:12:10. > :12:15.taken without the central government, democratically
:12:15. > :12:21.accountable, approving it. A final thought. You have always said if
:12:21. > :12:25.you believe in regulation, just of wise and well developed regulation,
:12:25. > :12:29.coming from the state. There are many in your own party who think
:12:29. > :12:34.the fundamental problem right now for the British economy is that it
:12:34. > :12:40.is over-regulated and the push must be to cut suedes of government red-
:12:40. > :12:45.tape, to deregulate and that is the only way of getting this economy
:12:45. > :12:48.moving. -- cut swathes. You mean unravel civilised society? Because
:12:48. > :12:53.regulation does. If you believe in the jungle, you don't have
:12:53. > :12:58.regulations. Survival of the fittest. What democracy has done is
:12:58. > :13:01.actually to create a civilised based on which they -- there are
:13:01. > :13:06.entitlements and responsibilities and certainties. Some of it may be
:13:06. > :13:09.over down but the idea that you will strip away the fundamental
:13:09. > :13:14.underpinning of a civilised society and create a new jungle is
:13:14. > :13:19.preposterous and I don't know any politician who believes it. Many
:13:19. > :13:25.use the rhetoric. Until you ask them to show the detail...
:13:25. > :13:30.Sometimes they are right at the margin or fringe. A practical
:13:30. > :13:33.example. That is the state intervening to make people put a
:13:33. > :13:36.helmet on when they are on a motorbike. You will have to explain
:13:36. > :13:42.that. The thing you where to stop yourself getting killed when you
:13:42. > :13:47.fall off your motorbike. That is state regulation. A helmet? They
:13:47. > :13:50.are called Steve Rhodes. Argue seriously telling me that that was
:13:50. > :13:55.the wrong thing to do and secondly if it was the right thing to do,
:13:55. > :13:59.can you say how many people are employed and -- in making them for
:13:59. > :14:03.people on motorbikes? That is wealth-creation. Let's talk about a
:14:03. > :14:07.different aspect of the relationship between government,
:14:07. > :14:10.society and the economy. In the last few days, but of the political
:14:10. > :14:14.oxygen in this country has been sucked up in a debate about
:14:14. > :14:19.benefits. The Cameron government has passed legislation which will
:14:19. > :14:24.put a cap, an unprecedented attack, on benefit rises. They will not
:14:24. > :14:28.rise with inflation in three years and will be capped at 1%.
:14:28. > :14:32.Unprecedented in 70 years. There are many, obviously the Labour
:14:32. > :14:37.Party, but many in the NGOs sector who work with the poorest people in
:14:37. > :14:47.this country who say it is an assault on decency, on basic
:14:47. > :14:48.
:14:48. > :14:53.British values, and deeply divisive. That is what pressure groups say,
:14:53. > :14:58.they will believe it. I am saying that people with limited income at
:14:58. > :15:08.work should actually be taxed at a higher level than is necessary in
:15:08. > :15:09.
:15:09. > :15:14.order to advance the benefits of those on benefits. I must be
:15:14. > :15:18.allowed to finish the sentence. Are you saying that those people on the
:15:18. > :15:24.lowest income should pay more tax in order that the benefits could
:15:24. > :15:31.rise faster than incomes are rising? That is the judgement
:15:31. > :15:35.behind the question you are asking me. Are you saying that this
:15:35. > :15:41.particular initiative, which hits the poorest in the country hardest,
:15:41. > :15:46.it hits the working poor very hard, is that the right way to respond to
:15:46. > :15:53.what is a fiscal crisis. Is that fair? Whatever you do people will
:15:53. > :16:02.say it is not fair. Personally, I will tell you, take away my winter
:16:02. > :16:07.fuel allowance, any sort of benefits through the tax system.
:16:07. > :16:12.The politics of it are difficult. I think they should do it. That would
:16:12. > :16:17.be another example of fairness. I would be the first to support it.
:16:18. > :16:22.The fact of the matter is, you are left with this question, there is
:16:22. > :16:27.no money. You have got to make tough decisions. In recent years
:16:27. > :16:33.benefits have been rising faster than incomes. This government
:16:33. > :16:40.measure addresses that issue. Not attractive politically. Just look
:16:40. > :16:46.at some of the statistics. 7 million working families will be
:16:46. > :16:51.more than �100 worse off every year. That is for the poor working
:16:51. > :16:56.families of this country. Going back to the debate about the
:16:56. > :17:00.balance between austerity and growth, particularly in the regions
:17:01. > :17:05.where most of the poor live. The cities and towns to have talked
:17:05. > :17:11.about, Manchester, Newcastle, Liverpool. Does it fit with your
:17:11. > :17:17.vision of how to get growth growing? The idea of getting debt
:17:17. > :17:22.under control fits absolutely. If we do not, interest rates will rise.
:17:22. > :17:32.The very people you are talking out will be priced out of jobs. There
:17:32. > :17:36.is a balance in all of these things. Do you personally think been... To
:17:36. > :17:44.help the richest people in this country, at the same time as
:17:44. > :17:54.hitting the ball with his benefits policy. With your long experience
:17:54. > :17:58.
:17:58. > :18:03.in politics, does it make sense to you? You have raised another issue
:18:03. > :18:08.and I welcome find it. I thought we had reached a broad feeling that
:18:08. > :18:13.40% tax was about right. It is quite a lot of money but it seems
:18:13. > :18:19.fair enough. Just before the last election the Labour Party thought,
:18:19. > :18:24.we will get it up to 50p. Hopefully the Tories will object to it and we
:18:24. > :18:30.will pay them in a corner as the friends of the rich. The rich are
:18:30. > :18:34.the ones who manage the investments and create the jobs. That is swept
:18:34. > :18:39.aside by the politics. Of course the Labour Party did it quite
:18:39. > :18:47.deliberately. They know it does not produce much money but it has a
:18:47. > :18:53.disincentive affect. They put the government into a corner. I believe
:18:53. > :19:01.that was a very sad thing to do. I thought we had reached a degree of,
:19:01. > :19:08.you know, compromise about this whole... A final thought on this.
:19:08. > :19:13.You know that in the 1980s and perhaps in the 90s, there was a way
:19:14. > :19:22.in which a perception developed that the Tories were relatively
:19:22. > :19:26.economic efficiency managers, but they were the nasty party. Do you
:19:26. > :19:35.believe there is a danger of the Tories once again being perceived
:19:35. > :19:41.as the nasty party? I think that is something they will be preoccupied
:19:42. > :19:48.by. Rightly so. Do I think it will be sustainable? No, I do not. The
:19:48. > :19:54.judgement will be made in 2015 in the election. In 2015 Cameron will
:19:54. > :19:59.win and he will win on three arguments. We have begun to grip
:19:59. > :20:03.the economic balances and to get stability. We have tackled a
:20:03. > :20:11.century of problem in the education field. Thirdly, we have begun to
:20:11. > :20:16.tackle this problem of too many people dependent on the state.
:20:16. > :20:25.cannot look too far ahead now. Long before 2015 there are other key
:20:25. > :20:30.decisions. I want to get to Europe. It was one of the 80
:20:30. > :20:35.recommendations you came up with for David Cameron, he must engage a
:20:35. > :20:39.stable policy for Europe. Nobody could argue that right now British
:20:39. > :20:46.policy in Europe is stable or predictable. He is about to make a
:20:46. > :20:49.big speech on Europe. He has given the signal that he wants to discuss
:20:49. > :20:55.repatriating powers, renegotiating the fundamental relationship
:20:55. > :21:04.between Britain and the European Union. Do you think he is making a
:21:04. > :21:08.terrible, even hysterical mistake? -- historical. Something Lady
:21:08. > :21:12.Thatcher said which I would remind the Prime Minister of, never go
:21:12. > :21:19.into a room before working out how to get out of it. That is the
:21:19. > :21:27.problem. I have every sympathy with the Prime Minister. I lived through
:21:27. > :21:33.John Major's regime. He is under great pressure. Great political
:21:33. > :21:41.pressure. He has propaganda sheets in the name of national newspapers
:21:41. > :21:47.are producing the most appalling misrepresentation. He is the
:21:47. > :21:52.political leader. I have great sympathy for his position. The real
:21:52. > :22:02.world is that for 1,000 years there has never been a moment when alpha
:22:02. > :22:02.
:22:02. > :22:08.interest, self- interest, have not been interwoven with Europe. It is
:22:08. > :22:18.clear that a strong, maybe even majority of Tory MPs, once an in-
:22:18. > :22:26.out referendum. The idea of a Britain outside the EU holds no
:22:27. > :22:36.fear. Should they? We are gaining what we can from the facts of
:22:36. > :22:41.modern life. Not even modern life. It has been there for as long as I
:22:41. > :22:46.have had any knowledge of history. The idea that the Europeans are
:22:46. > :22:56.going to abandon their deepest convictions to suit us, is, how may
:22:56. > :23:04.
:23:04. > :23:10.I put it? A -- a bit of a punt. is not going to work if there are
:23:10. > :23:13.27-28 categories of EU membership. Many in Europe believe that if
:23:13. > :23:20.David Cameron pushers for a new relationship he will end up facing
:23:20. > :23:24.the exit doors. The thing I find interesting about Ireland, the
:23:24. > :23:30.Euro-sceptics were telling us they were going to have to abandon the
:23:30. > :23:35.euro. The newspapers are now about how much money they have been able
:23:35. > :23:39.to raise because they have addressed national problems. Today
:23:39. > :23:43.people know the euro is going to survive. Do you believe Cameron may
:23:43. > :23:50.be the British leader who ends up taking Britain out of the European
:23:50. > :23:54.Union? I do not think we are going to leave the EU. It would be an
:23:55. > :24:01.extraordinary abdication of British self interest if we were to believe.
:24:01. > :24:06.In the mid-term of the Parliament there is growing unease which you
:24:06. > :24:12.see in Scotland, France, Holland and Germany. People are frustrated
:24:12. > :24:16.by what is happening. This is being exploited by people who ought to
:24:16. > :24:22.know better into trying to suggest this is a membership of Europe.
:24:22. > :24:30.Some of those people are Tories. Do you feel desperately isolated in
:24:30. > :24:37.Europe own party? I think if you get down to it, the majority of the
:24:37. > :24:44.Europe. Do you really think so? That is not what we hear. It is not
:24:44. > :24:49.the sound you hear. It is the question of the silent majority. I
:24:49. > :24:55.think the Prime Minister represents that majority. We have to end there.
:24:55. > :25:05.Lord Heseltine, famous for being on HARDtalk. Thank you are very much
:25:05. > :25:28.
:25:28. > :25:34.We are just over one week into the New Year, no wintry weather as of
:25:34. > :25:36.yet. That is going to change. Some fog patches forming overnight.
:25:36. > :25:43.Particularly across the Midlands and areas of the West Country.
:25:43. > :25:48.Things will turn quite murky overnight. Light rain over the
:25:48. > :25:51.south-west of the British Isles. It is going to be a grey start to the
:25:51. > :25:56.morning, maybe not 50 Shades of Grey, but a couple. Some thick
:25:56. > :26:03.cloud heading into the north and east of Scotland. Into England you
:26:03. > :26:10.can see most areas begin with grey skies. If we have clearer weather,
:26:10. > :26:14.there will be pockets of frost around here and there. Into the
:26:15. > :26:19.Midlands and West Country, it is a murky start with fog around.
:26:19. > :26:22.Visibility below 100 metres, making for some difficult driving
:26:22. > :26:25.conditions. Rain edging into Cornwall, a few spots of rain
:26:25. > :26:34.falling in Devon and Somerset. East Anglia and the south-east, a dry
:26:34. > :26:37.start to the morning. It is going to be grey and quite cold as well.
:26:37. > :26:43.For the rest of Thursday, parts of the Midlands will see some fog
:26:43. > :26:46.lingering. We see the thicker cloud bring outbreaks of rain eastwards
:26:46. > :26:53.into southern parts of Wales and into Somerset, Devon and Dorset
:26:54. > :26:56.towards the end of the day. Sunshine in short supply. Friday,
:26:56. > :26:59.we have this weather front affecting eastern areas of Scotland
:26:59. > :27:07.and England. That is where the thickest cloud is expected.
:27:07. > :27:09.Temperatures around 4-5 degrees. It is going to be a cool day. A little
:27:10. > :27:17.bit of sunshine around. With the best of the sunshine, temperatures
:27:17. > :27:20.up 6-7 degrees. Mild weather hanging on into the south-west.
:27:20. > :27:28.Things are set to change this weekend. Low pressure works in off
:27:28. > :27:31.the Atlantic. Snow for a time on the edge of it. Saturday night we
:27:32. > :27:34.tap into the cold air from the near continent. That will bring a risk
:27:34. > :27:39.of snow to southern counties of England. Not just over hills, at
:27:39. > :27:45.lower levels as well. This weekend it is going to turn colder. The