29/11/2011 Newsnight


29/11/2011

Jeremy Paxman grills the Chief Secretary to the Treasury on the spending cuts he's ordered. How much pain will the Autumn Statement bring to the public?


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Transcript


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Woe, woe, thrice woe, Government policy is hurting but so far it is

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not working. The British economy is in worse pain than any time in

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recent memory. According to the Chancellor of the Exchequer, there

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is no alternative, in fact, even more of the same. Promises of

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quick-fixes and more spending this country can't afford, at times like

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this, are like the promises of a quack doctor selling a miracle cure.

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quack doctor selling a miracle cure. We do not offer that today.

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So, Paul, is this advance surgery, or death by a thousand cuts?

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don't know if it is the medicine killing the patient, but something

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has radically altered the prognosis for British growth. I will be

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asking the chief secretary to the Treasury, why, after 18 months of

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failure, we should give the Government six more years to do

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what they promised. George Osborne is now borrowing even more money

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than Gordon Brown's Government did. Do the similarities go yet further?

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What ought the Government to be doing when we are all in such an

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Rotten growth, rising unemployment, longer to work until you can retire

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and on top of all that, billions more required in borrowing. Plan A,

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to sort out the economy, hasn't worked. The promise to balance the

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books by the next election is dust, so the answer is, more of plan A,

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and keep your fingers crossed, because if the eurocrisis gets

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worse, the promise is recession. First tonight, David Grossman

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reports. This was never going to be a feel-

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good classic. George Osborne was always unlikely

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to make it on to any greatest hits collection. Who could forget Gordon

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at his growly best with PBR2006. Who can forget, the tenth

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consecutive year of economic growth. They don't write them like that any

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more. As the present Chancellor left for the Commons, much of the

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softening up had been done. Many of the new measures announced today,

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designed to create growth had been pre-briefed. Why? Well he knows

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today those measures just can't compete with the grim news, that

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the economic hole we are in, is far deeper than previously thought.

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OBR today has shown new evidence that an even bigger component of

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the growth that preceded the financial crisis was an

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unsustainable boom, that the bust was deeper and had an even greater

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impact on our economy than previously thought, and the result

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of this analysis is that the OBR have significantly reduced their

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assumptions about spare capacity in our economy, and the trend rate of

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growth. This increases their estimate of the proportion of the

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deficit that is structural. In other words, the part of the

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deficit that doesn't disappear, even when the economy recovers.

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it gets worse. Not only is the hole bigger than the official

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predictions told us, growth, the engine, that will help fill that

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hole, is going to be far slower than predicted. Way back in 2010,

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growth for this year was predicted to be 2.3%, what do you know, it

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has tumbled down to just 0.9%. Back then they told us growth for 2012

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would be 28%, in the new charts it is in at 0.7%, ouch! But the

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biggest climber, borrowing, up an extra �100 billion on the old

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credit card over the next four years. As you might expect, Labour

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see this as evidence that the coalition made the wrong call on

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the economy. The Chancellor's entire economic and fiscal strategy

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is now in complete disarray. And yet all which get are excuses.

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Blaming anyone and anything, the Labour Government, the snow, the

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royal wedding, the Japanese earthquake, higher inflation, VAT,

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the eurozone. Low paid, low paid dinner ladies and Teaching

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Assistants, anybody but himself Mr Teaker -- Mr Speaker. When it is

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the Chancellor to blame, it is his failing plan that has pushed up

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unemployment and pushed up borrowing. It is his reckless

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gamble that has made things worse here in Britain, not better.

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question then, what does the Government plan to do about this

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new, bigger hole? First, the relatively easy changes, the

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Chancellor announced slower growth in the overseas aid budget, to keep

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it at 0.7% of GDP, the rest gets much harder, however you try to

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spin it. Not quite a non-mover, public sector pay rises will be

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limited to 1% for an extra two years. A surprise climber, the

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pension age rising to 67 in 2026. Neither of these changes will be

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softening the resolve of public sector union, they go on strike

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tomorrow. Nor will the OBR forecasting 7 10,000 public sector

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workers losing their jobs. That forecast sup from 4 Hunniford,000

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in March? I found it incred -- I found it incredible the attacks on

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the public sector workers, they have been through a two-year pay

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freeze with inflation through the roof, food prices up 8%, yet their

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pay has been held back because of the failure of the banking system,

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nothing to do with themselves. Institute for Fiscal Studies is not

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known for employing excitable hot heads, when they find something

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remarkable, we should perhaps listen. As a result of the dramatic

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changes in the growth forecasts, we will have another two years of

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spending cuts, big spending cuts after the next election, after five

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years of big spending cuts we will have seven years of spending cuts.

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Same level in 2017 as we have had in this parliament. How does that

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compare historically with previous fiscal contractions? We have been

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pointing out five years of spending cuts is more than we have ever

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managed before, seven years even more, this is historically

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unprecedented. Not only has the economics of the deficit changed,

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so has the politics. The central plank of the Government's economic

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plan was to deal with the nasty, difficult business of cutting the

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deficit by the time of the next general election. Allowing both

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parties to go to the country, having claimed to have dealt with

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the nation's financial problems, but offering a sunnier, more

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optimistic prospect for the future. Now, they are going to have to

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offer more pain. Remember, all this dreadful

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economic news is predcated on hoping for the best in the eurozone,

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assuming they manage to avoid catastrophic meltdown. If that

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happens, we could look back on today's numbers as wild, crazy

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optimisim. We will see you back in March 2012 for the Budget, those

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numbers could have tumbled again. Paul Mason is here. How important

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is the downgraded growth? It is huge, because on day like today,

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you do want to know when are things getting back to normal. You want to

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know when do we balance the books. On both those questions the

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Government has just severely missed what it thought was going to happen.

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Let's have a look here at the world that the coalition thought it would

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be presiding over. Five years of recovery, start anything 2010, 2%

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growth, then rising to 3%, falling back a bit, you glide into the next

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election with that as your record. This is the reality, The Office

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showed to them today. That red -- the office of budget responsibility

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showed them today. The red line, we are lucky if we are not already in

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a recession and flattening out. In the gap between reality and

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aspiration is a whole bunch of political pain for the Government.

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Will they ever meet fiscal targets? They have done it by moving it back

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a year, and by adding another �30 billion on to austerity. This is

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the austerity we knew. David was talking about in the report there,

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with the guy from the IFS, this is the next four years of the

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coalition Government. Just to have any chance of balancing, of meeting

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the target they set themselves, the fiscal mandate, they have had to do

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this, adding an extra �30 billion, by 2016, to the austerity. The

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problem for them there is, these last two years are after the next

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election. It rather begs the question. George Osborne might be

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signed up to this, and large parts of the Conservative Party might,

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but the Liberal Democrats I'm not sure whether they thought that was

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in the coalition agreement. To go into parliament number two with the

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biggest fiscal austerity programme ever. So you have got the ratings

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agency saying this stuff leaves you with almost no room for manoeuvre,

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you need to watch it in terms of sovereign debt crisis. George

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Osborne has responded, he has his retaliation in first, saying the

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facts changed, I changed my mind, I will do more austerity.

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George Osborne's righthand man is the Liberal Democrat chief

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secretary to the Treasury, Danny Alexander. He is here, welcome. So

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you are accepting that plan A hasn't worked? No, I don't accept

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plan A hasn't worked. What I do accept very much is what Paul has

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just set before us, which is that for a whole range of reasons that

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the OBR set out today, growth is slower and it will take longer to

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meet the goals we set out. Plan A was going to balance the books

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within this parliament, you are clearly not going to do that?

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built in considerable flexibility in our plans when we set them out.

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Let me explain. The promise was to do it in the parliament? We set out

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a fiscal mandate to balance the fiscal deficit over a five-year

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period, the OBR said we will do that today. We set to get the whole

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of the UK debt falling by 2016, the OBR say we will achieve that,

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against the background of crisis in the eurozone, rising commodity

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prices, and also they told us today that the size of the crisis we saw

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a few years ago was worse. didn't hear what David Cameron said

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about balancing the books by 2015. Let me ask you this. If austerity

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hasn't brought results in the time he predicted, why is the answer

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more austerity? We need to make sure we retain something very

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important to this country, achieved by this coalition Government, the

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credibility of the fiscal plans, which has helped to ensure we have

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very low interest rates in this country. That benefits individuals

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with their mortgages and businesses with their loans. If you go back to

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April 2010, you will see that Britain's long-term interest rates

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are actually slightly higher than Italy, for example, now there is a

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much bigger gap the other way, precisely because this coalition

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plans have credibility. No other cuts guaranteed within this

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parliament? We are sticking to the plan. You can't do that, because

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you have a caveat elsewhere? David explained, we are rolling

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that forward for a further two years, in order to make sure we

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deal with the structural deficit we inherited. If there is another

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crisis which you are already blaming your difficulties on

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external factors, if will are further external factors there will

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be further cuts? The OBR presented an analysis of the deterioration.

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You can query them on the analysis they have put out, but clearly the

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crisis in the eurozone is a major problem for the UK too. It is our

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major trading partner. I was merely asking you what you would do if

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further circumstances of a similar kind happen in future. I note you

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don't want to answer that. Let me ask you this, factually, of the

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cuts announced, �30 billion additional cuts, �.2 billion, �1.2

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:12:53.:12:53.

billion comes from changes to the tax credit system, where does the

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other �28.8 billion come from? will be found in 2016/17, in good

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time, well before the next election, we will set out the measures to

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deliver the additional savings in the next parliament. You haven't

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decided where to find �28.8 billion? No. We have conducted a

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Spending Review, that set out the details of our cuts for this

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parliament. We have just decided today what the path of spending is

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in the following two years, and in due course we will set out what

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that means in detail. You are going into the next election, promising

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further billions of pounds in cuts in public spending. That is what

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you are going to say in your manifesto in the next election?

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afraid so, yes. I thought your promise was that in the last year

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of this Government, you would not necessarily be giving unequivocal

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endorsement to every Government policy? As a Government we

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originally, as you said earlier, set out plans that would meet our

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targets a year early, in 2014, 15, because of the economic

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circumstances have deteriorated, we need to make the commitment for

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future years. Liberal Democrats and Conservatives will work together in

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Government, to set out plans for those following two years, and of

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course we will both be committed to delivering them. What is the point

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of voting for you as opposed to the Conservatives then? There are lot

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of points to vote Liberal Democrats rather than Conservative. Those are

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things we will set out at the general election in our respective

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manifestos. Let's take the most potent example? That is not written

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yet. You will be telling us we have to save another �0 billion some

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where or other. Let's take the most topical answer, what was announced

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today by the Chancellor of the Exchequer, what was not in the

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proposal, which the Tories wanted to put in, and you in the Liberal

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Democrats kept out. Which proposal are you talking about. The Autumn

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Statement today, all the plans for cutting public spending to get the

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economy back on track, what did the Tories want to put in there that

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you the Liberal Democrats kept out? We had lots of debates within the

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Government. I'm not going to air those debates in public. We agreed

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all the measures in today's Autumn Statement. Precisely for the

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reasons that I have said. We have not yet set out the precise measure

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that is we will take in the next parliament to balance the books.

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I'm discussing what happened last week? We need to retain the

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credibility we have. What credibility do you have if you

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can't tell us there is a single measure you kept out of the Autumn

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Statement as a consequence of you being in Government? I'm not going

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to get into airing discussions and debates that took place within the

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Government. Was there anything? There were lots of discussions and

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debates about what we might do. there nothing, saying as a Liberal

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Democrat, I will keep that out? There are plans for investing in

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infrastructure, transport, broadband, to get the economy

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stronger for the long-term. As well as the fact we have taken steps

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that retain the credibility, that delivers the low interest rates,

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that matter most to people, low interest rates that we put at risk

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if Labour's alternative was put in place in this country. When you

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listen to George Osborne today, did you think, that sounds like Nick

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Clegg? Of course I don't think that. I think there is the Chancellor of

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the Exchequer, who I work closely with in the Treasury, setting out

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the agreed Government plans for the economy, over the next few years.

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That is the right and proper way to go p it. What about job losses,

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there is a further 200,000 jobs lost in the public sector, have you

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decided who will lose their jobs? As the OBR says in its report,

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those figures are based on un-- are facing a lot of uncertainty. They

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are based on assumptions that the OBR makes that all of the further

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cuts in the future years you are referring to are cuts to

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departmental budgets. There are other ways of makes those cuts, I

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would treat the figures with a degree of caution, as the OBR says.

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For this plan to work, there has to be no crisis within the eurozone?

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As the OBR says, the phrase they use is "the eurozone struggling

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through", to meet these plans. Of course, there is a huge amount of

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uncertainty because of the eurozone crisis. If the eurozone doesn't

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resolve its problems that could have a serious knock-on effect for

:17:18.:17:22.

the UK economy. We have to hope it doesn't happen? We are working with

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the Government and European partners to make sure it doesn't.

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Rachel Reeves, you are the Shadow Chief Secretary to the Treasury.

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You are not going to sit there and tell us had they followed Alistair

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Darling's plan, there would have been growth at 3% or something, are

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you? Whoever was going to be in power after the last election would

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have had to make tough decisions about tax and spending. And a lot

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of cuts? What happens in the eurozone will have huge

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implications for British families. Have you a sense of how it might

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have been if you had won the election? We had set out a deficit

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reduction of halving it over the parliament. The Government took a

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gamble to cut as far and fast as they did, that has choked off

:18:05.:18:08.

economic recovery. You know perfectly well the Office for

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Budget Responsibility said today the reason for the problem with

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growth was nothing to do with these plans. It was to do with energy

:18:16.:18:20.

prices and world commodity prices? The economic stagnation, the

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flatlining economy, started in Britain well before the eurozone

:18:23.:18:27.

crisis. A year ago the Government. I didn't mention the eurozone

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crisis they don't mention it, they mention energy prices and world

:18:33.:18:36.

commodity prices? Of course those things put up inflation. But the

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flatlining economy started a year agoful the Chancellor then blamed

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the snow. Then he blamed the royal wedding, because of the extra bank

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holiday, now he's blaming Europe. At some point the Chancellor has to

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take responsibility for his own actions. It was his poll assist

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decisions that choked off economic recovery here in Britain. Let me

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ask you another factual thing, you saw the figures today, an extra

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�111 billion of borrowing over the next few years. How much greater

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would it have been if we followed your alternate Government plans?

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believe, because the Government have choked off growth, you get

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rising unemployment, you are paying more out in benefits, and you are

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getting less in taxes because more businesses are failing. The extra

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borrowing, the �158 billion extra since last year, is the cost of

:19:24.:19:28.

economic failure. If you half the budget deficit over this parliament,

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slower rate of budget deficit reduction, then your growth would

:19:32.:19:36.

have continued, unemployment wouldn't have reached the peaks it

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did. You are saying there would have been no more borrowing, you

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are not really saying that are you? I honestly believe if you had a

:19:44.:19:47.

more balanced plan for deficit reduction, growth would have kept

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going, unemployment wouldn't have risen to the levels it has risen,

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and we are paying more because of economic failure, unemployment

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benefits are going up. What do you make of that? It is incredible, the

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plan set out by the previous Government would have added at

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least another �100 billion to the borrowing figures we saw today, the

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thing we haven't heard from the Labour Party at all is any of the

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spending cuts that were put forward already in this parliament, or the

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tax rises they support. Not only do it. You it put it directly to her?

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I would love to hear any spending cut we are putting forward that

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Labour Party supports. Right now your position is we can't have any

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austerity. Everything we put forward you object to. It would be

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nice to hear one spending cut you support. On police cuts, we said we

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would support cuts of 12% over this parliament, compared with the 20%

:20:37.:20:40.

cuts the Government have put forward. We recognise the need to

:20:40.:20:44.

be cuts, we recognise the need for tax increases, we would do it at a

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slow rate. Those are the choices we would make. If you look at the

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Government spending plans and borrowing now, it will be �37

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billion. She has given you -- billion higher than Alistair

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Darling. You just asked for one. She did give you one. 18 months

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into this parliament, and the Government need to start taking

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responsibility for its own actions. Because we're borrowing �158

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billion more compared with a year ago, because unemployment is rising

:21:16.:21:20.

and businesses are failing. I do take responsibility for our actions,

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and I accept this country has very, very serious economic problems.

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Those serious economic problems require a Government that is

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capable of taking the tough decisions to secure our economic

:21:30.:21:33.

credibility, to deliver the low interest rates this country needs,

:21:33.:21:38.

and your plan is one that would lead to more borrowing, more debt,

:21:38.:21:41.

higher interest rates. Ed Balls yesterday on the radio said he

:21:41.:21:44.

thought low interest rates were a sign of failure, he wanted higher

:21:44.:21:47.

interest rates, which would cause people to have more expensive

:21:47.:21:50.

mortgages and businesses to fail. One million young people are out of

:21:50.:21:55.

work, 2.6 million people out of work. That is now projected to

:21:55.:21:59.

increase into next year. So those are the decisions you have made.

:21:59.:22:03.

Those are the consequences of your decisions. The other consequence is

:22:03.:22:07.

you are borrowing more to pay for the benefits. One of the things I

:22:07.:22:11.

agree with you is the importance of youth unemployment. As a Government

:22:11.:22:16.

and Liberal Democrat, I don't want to see people scarred by

:22:16.:22:20.

unemployment, so today we announced another billion pounds for aout

:22:21.:22:24.

unemployment programme so every 18- 24-year-old will have access to a

:22:24.:22:28.

job or training place. 18 months ago you scrapped the Future Jobs

:22:28.:22:35.

Fund. That is because it was an expensive failure. You have already

:22:35.:22:39.

let down so many young people. Youth unemployment, long-term, is

:22:39.:22:44.

up 80% since the start of the year. Decisions you made are causing

:22:44.:22:50.

youth unemployment to rocket. know the Future Jobs Fund was an

:22:50.:22:54.

expensive failure. Why are you reintroducing a pale imitation.

:22:54.:22:58.

growth for this country is plan you put forward to destroy this

:22:58.:23:01.

country's economic credibility and lead us to higher interest rates.

:23:01.:23:07.

Can I come across this, we are running out of time. Do you support

:23:07.:23:11.

the public sector workers' strike tomorrow? I think the strikes are a

:23:11.:23:15.

sign of failure. I'm not going to support a strike. So you don't

:23:15.:23:18.

support the strike? I don't, because it is a sign of failure.

:23:18.:23:22.

But the Government...That Is the Labour Party's official policy, you

:23:22.:23:25.

do not support the strike? We don't support the strike because it is a

:23:25.:23:30.

sign of failure. We think the Government needs to give something

:23:30.:23:35.

more, to low-paid public sector workers. They have seen today their

:23:35.:23:40.

pay will be frozen for another two years. Your opinion tomorrow, it is

:23:40.:23:44.

OK to strike, we can't support you, but we think it is a demonstration

:23:44.:23:48.

of failure? We understand why they are striking, effectively, low-paid

:23:48.:23:52.

public sector workers are having a 3% tax increase because of the

:23:52.:24:01.

increased contributions. We think a strike is a failure. We want the

:24:01.:24:05.

Government, we understand why they are striking, it is a tax increase

:24:05.:24:08.

on public sector workers. There is only one word for the predicted

:24:08.:24:12.

rate of growth for the economy, that is rubbish. 1% next year, only

:24:12.:24:18.

this spring it was predicted at 2.5%. No more glad, confident

:24:18.:24:23.

morning, hello the endless morning after. Gordon Brown may have talked

:24:23.:24:27.

nonsense about having eradicated boom and bust, now it is just bust,

:24:27.:24:31.

sometimes it is difficult to tell the difference between them. Paul

:24:31.:24:41.
:24:41.:24:46.

Mason has what we have to look It will be all right eventually,

:24:46.:24:49.

that has been the message from George Osborne since he came to

:24:49.:24:54.

power. One day the UK will recover, and with the private sector driving

:24:54.:24:58.

the growth. But that bright tomorrow is getting further and

:24:58.:25:03.

further away. At the centre of the Government's

:25:03.:25:07.

recovery plan was rebalancing, from state spending and credit-fuelled

:25:07.:25:11.

consumption, to a future based on factories, ports, exports. So

:25:11.:25:15.

what's happened to that? I think the objective of rebalancing is

:25:15.:25:20.

absolutely right, indeed it has to happen. But so far there is next to

:25:20.:25:26.

no sign of it whatsoever. The external environment has massively

:25:26.:25:29.

deteriorated, hopes for a strong recovery have been dashed by events

:25:29.:25:33.

on the continent and around the world. Meanwhile companies aren't

:25:33.:25:35.

increasing their investment, if anything they are set to cut it

:25:36.:25:39.

back. There was supposed to be two

:25:39.:25:42.

drivers of rebalancing, more business investment, and more

:25:42.:25:47.

exports. Today the Government's own watchdog said we probably had the

:25:47.:25:52.

bulk of that effect already. Recent data revisions suggest that exports

:25:52.:25:55.

have picked up more already in response to the weakness of the

:25:55.:25:59.

pound than previously thought. So there is less of a boost still to

:25:59.:26:03.

come interest this quarter. In the case of business investments, we

:26:03.:26:07.

think firms may have less cash available to invest than we

:26:07.:26:10.

previously thought. Another thing we learned today, about the future,

:26:10.:26:15.

is it will be more austere. The cuts will go on long after the 2015

:26:15.:26:19.

election. And those who advocated slashs back the state to boost

:26:20.:26:24.

growth are delighted. I think this is beyond anything we have an

:26:24.:26:28.

experience of before this particular recession. So the scale

:26:28.:26:33.

of cuts we are talking about here is going on for six years of

:26:33.:26:37.

continuous cuts. We are achieving something like �116 billion of cuts

:26:37.:26:44.

by the end of the period, in spending. �147 billion cuts in the

:26:44.:26:48.

total deficit. This is absolutely extraordinary, unprecedented.

:26:48.:26:55.

The huge variable now is what happens in Europe. If the continent

:26:55.:26:59.

drifts towards default and euro exits, that could mean the

:26:59.:27:04.

difference between light at the end of a tunnel for Britain and the

:27:04.:27:11.

tunnel collapsing. A further euro blowout could lead to raising of

:27:11.:27:19.

GDP and enormous spending cuts and rising taxes.

:27:19.:27:23.

The economic future right now howevers somewhere between the

:27:23.:27:28.

controllably austere and euro catastrophy. However clier the goal

:27:28.:27:33.

of a rebalanced Britain, it will be impossible to achieve in an

:27:33.:27:37.

unbalanced world. Where can we expect growth to come

:27:37.:27:40.

from? One for the former Conservative cabinet minister, Lord

:27:40.:27:45.

Heseltine, who heads the Government's Regional Growth Fun,

:27:45.:27:51.

and our guest from the science policy research unit, and author of

:27:51.:27:56.

the The Entrepreneurial State. People seem to say, gosh this is a

:27:56.:27:59.

bleak picture today, did you see it as such? It is a bleak picture. We

:27:59.:28:02.

didn't need the Chancellor to get up. We know Europe is stagnant, the

:28:03.:28:07.

Middle East is in turmoil, and these are the markets that, in part,

:28:07.:28:12.

we have to serve. So it is no surprise, that we have got a very

:28:12.:28:16.

difficult situation. The issue is what should the Government do. In

:28:16.:28:22.

my view the Chancellor's statement was one of the best of its sort I

:28:22.:28:26.

have listened to. For this reason, for as long as I have been in

:28:26.:28:32.

politics, the policy has to be overconsume and underinvest, to

:28:32.:28:37.

hear a Chancellor say we will boost the investment about the long-term

:28:37.:28:40.

improvement of Britain's competitiveness, even in the harsh

:28:40.:28:43.

circumstances was courageous and right. Were you impressed? I was

:28:43.:28:48.

much less impressed. Because I absolutely agree we need to

:28:48.:28:52.

increase business investment, business is currently hording lots

:28:52.:28:57.

of cash, �75 billion is horded not spent. How do you do it? We needing

:28:57.:29:01.

to back to economic they arey. It is not enough to say increase

:29:01.:29:06.

investment. What drives investment is understanding where new

:29:06.:29:09.

technological opportunities are, it is not small measures, little

:29:09.:29:13.

bandages here and there, infrastructure projects, some

:29:13.:29:19.

apprenticeships, some enterprise zones. Why did Pfizer leave

:29:19.:29:24.

Sandwich Kent, they didn't go to a low-cost tax haven, they went to

:29:24.:29:29.

Boston, an expensive part of the US, with huge state investment in

:29:29.:29:34.

universities and schools, especially national laboratories.

:29:34.:29:39.

NIH funding is what drives where farm ma is going. Your argument is

:29:39.:29:45.

Britain should be doing something similar? Absolutely. The scale is

:29:45.:29:48.

wrong? The scale and signals are wrong. I don't think she heard the

:29:48.:29:50.

statement. The Chancellor talks about looking at the opportunity of

:29:50.:29:55.

the third London airport, he talked about the Atlantic Bridge in

:29:55.:29:58.

Merseyside. He talked about a billion pounds for the Regional

:29:58.:30:04.

Growth Fun, of which I'm chairman. He talked about a billion worth of

:30:04.:30:08.

investment funds in every aspect. Reignighting and getting British

:30:08.:30:12.

Industry investing, the essence, if I may say so, is confidence, and

:30:12.:30:15.

confidence is crucially dependant on maintaining low interest rates,

:30:15.:30:25.
:30:25.:30:30.

and a Government in control of the economy. Well, I listened to the

:30:30.:30:34.

statement and there was missing an analysis of what the economy will

:30:34.:30:40.

be. Every leading country, Germany, Finland, China, they are investing

:30:40.:30:44.

massively in the environment. The main thing holding the Government

:30:44.:30:47.

back, is the ideolgical position that all Government can do is fix

:30:48.:30:52.

things here but not drive economic change and growth. That isn't true,

:30:52.:30:56.

they did broadband a massive incentive around broadband.

:30:56.:31:00.

Anything around the green economy. There is a whole range of

:31:00.:31:03.

Government policies to support the green economy. He didn't talk about

:31:03.:31:09.

it. Look, the fact is, and I think we agree, this is not an industrial

:31:09.:31:12.

strategy, this is an economic statement by the Chancellor. But it

:31:13.:31:16.

begins with investment, it begins with private sector job creation,

:31:16.:31:22.

and what he now has to do, I hope, is to turn this into a long-term

:31:22.:31:25.

strategic industrial policy for this country. Yes, but many of the

:31:25.:31:28.

measure that is you mentioned before were, in fact, just

:31:28.:31:33.

repairing things they took away from the 2010 Spending Review.

:31:33.:31:38.

simply isn't the case. A �1.7 billion cut in research. Today we

:31:38.:31:44.

heard they will increase it by �200 million. Aren't you persuaded by

:31:44.:31:47.

all the talk of rebalancing the economy. Doesn't that show the

:31:47.:31:50.

Government is committed to investment in other areas other

:31:50.:31:53.

than the financial sector? We have to define what we mean by

:31:53.:31:56.

rebalancing. The main rebalancing that needs to be done is not so

:31:56.:32:00.

much from the size of the financial sector, but from the short run

:32:01.:32:05.

priorities, if you want, that the financialisation of the economy has

:32:05.:32:10.

had on every single sector. The fact that the most innovative

:32:10.:32:15.

companies, the ones spending on R & D, the ones that would like to be

:32:15.:32:18.

training workers and spending on human capital, are often penalised

:32:18.:32:22.

by financial markets. That needs to be rebalanced. I would state that

:32:22.:32:28.

both the US and the UK have been the countries most affected by the

:32:28.:32:35.

short run financial. This is an old complaint, America is so big and

:32:35.:32:39.

has such big expenditure in NASA and defence industries, they have

:32:39.:32:43.

huge Government support, eclipsing anything we could do. The important

:32:43.:32:47.

issue about rebalancing, is leadership in the big English

:32:47.:32:52.

cities, and in the statement today, the Chancellor referred to the

:32:52.:32:55.

coming mayors who are going to give a leadership to our English cities,

:32:56.:33:00.

that is long overdue. We have to break this Government monopoly in

:33:00.:33:06.

Whitehall, where every decision is taken there. When we did the report

:33:06.:33:10.

about Liverpool, the exciting thing was when we went to Liverpool and

:33:10.:33:13.

listened, it was alive with people who had ideas and projects. What

:33:13.:33:18.

happens today, the Chancellor stands up, we will back the

:33:18.:33:22.

Atlantic Bridge in Liverpool. are saying cause and effect? Not at

:33:22.:33:27.

all. But a lucky coincidence. Everyone obviously supports the

:33:27.:33:30.

Chancellor's statement about the infrastructure projects, you would

:33:30.:33:34.

be crazy not to. Is that a strategy for growth? I think that was more a

:33:34.:33:38.

guilt trip, the fact it had been cuts, cuts, cuts, theyn't waed to

:33:38.:33:42.

spend, but he did nothing, in fact, to show we were going to create the

:33:42.:33:45.

kind of opportunities that are currently driving growth, before

:33:45.:33:51.

the contagion occurred, in countries like Germany, China,

:33:51.:33:54.

Brazil. There weren't a lot of laughs in what the Chancellor had

:33:54.:34:00.

to say today, there were a lot of fiddley little initiatives,

:34:00.:34:02.

characteristic and reminiscent of the last Prime Minister. Gordon

:34:02.:34:08.

Brown went on from the Chancellorship to inher rite it

:34:08.:34:14.

from his called ally, -- inher rite it from his called friend, Tony

:34:14.:34:18.

Blair. George Osborne spent five years

:34:18.:34:21.

sloging away as Shadow Chancellor, before finally getting his hapbtdz

:34:21.:34:26.

on the prize, does he owe more to one of his predecessors than he

:34:26.:34:29.

would like to admit. It was Gordon Brown through and through,

:34:30.:34:35.

everything leaked in the past. Full of gizmos and flashy little schemes

:34:35.:34:40.

that subsidise this and tax relief that, and complicate that. He is

:34:40.:34:45.

repeating all the flaws of Gordon Brown. Perhaps not so you are

:34:45.:34:49.

surprising, both men have combined the job of Chancellor with being

:34:49.:34:53.

their party's best political strategist. George Osborne shadowed

:34:53.:34:57.

Brown, picking up some of his tricks and maybe some bad habits.

:34:57.:35:02.

In two years of being shadowle cha, he has made no progress in

:35:02.:35:07.

developing an economic policy. He cannot tell us. Familiarity breeds

:35:07.:35:11.

contempt. But the younger man hopes to follow in the footsteps of the

:35:11.:35:16.

younger one from the Treasury to Number Ten. Brown buried all his

:35:16.:35:20.

potential rivals, Osbourne is shaking off a persistent challenger,

:35:20.:35:23.

another reason why his pronouncements need to be vote-

:35:23.:35:29.

winning ones. I noticed Ed Balls was having fun teasing Mr Osbourne

:35:29.:35:33.

about the ambitions of Boris Johnson, clearly the other big

:35:33.:35:41.

rival for the leadership in 2020. That is a long way in advance. The

:35:41.:35:43.

personal relationship between Prime Minister and Chancellor is much

:35:43.:35:51.

better than when under Tony Blair and Gordon Brown. George Osborne

:35:51.:35:56.

did manage to sugar the pill, a bit for high-tech research here,

:35:56.:35:59.

something for families there. Those of the hard working variety, of

:35:59.:36:05.

course. Some wonder whether as Gordon Brown listened, such

:36:05.:36:09.

pronouncements might have left him flushed with pride. If he was

:36:09.:36:12.

watching the budget he would have switched off and thought the young

:36:12.:36:18.

kid learned a few tricks from him afterall. The way you dished out

:36:18.:36:21.

goodies to everybody around, you rushed through the bad news and

:36:21.:36:26.

lingering on the good news. It did seem like a conservative cover

:36:26.:36:31.

version of the song originally sung by a Labour Chancellor. I am one of

:36:31.:36:34.

those hoping we get a different track all together. Many of the

:36:34.:36:37.

spending announcements were drip- fed to the media over the last week.

:36:37.:36:41.

Because they were news, they were given more prominence than perhaps

:36:41.:36:48.

they deserved. That was often few the day after a Gordon Brown

:36:48.:36:51.

economic -- true the day after a Gordon Brown economic statement, we

:36:51.:36:55.

will know tomorrow if it is equally true of a George Osborne one.

:36:55.:36:59.

Looking at the Treasury building, you see a glaring illustration of

:36:59.:37:04.

the difference between the two men. Gordon Brown, who had this building

:37:04.:37:08.

refurbish, was a Chancellor in the time of plenty. George Osborne is

:37:08.:37:13.

Mr Austerity, whether he likes it or not. George Osborne,

:37:13.:37:16.

conspicuously, says he was not increasing or decreasing the public

:37:16.:37:20.

spending total for this parliament. What he has done is to move

:37:20.:37:24.

spending around within that constant spending limit. I think

:37:24.:37:29.

when you look at it, the differences between Brown and

:37:29.:37:33.

Osbourne, are greater than the similarities. If the amount of

:37:33.:37:37.

money is being spent is the same, don't all these little

:37:37.:37:41.

announcements of an extra billion here and there, start to give a

:37:41.:37:45.

misleading impression? No, I think it depends what you spend it on.

:37:45.:37:48.

Gordon Brown used to spend money we didn't have, George Osborne has

:37:48.:37:52.

said, for the first two years of the next part, if he's Chancellor,

:37:52.:37:56.

we will -- Parliament, if he's Chancellor, we will see real term

:37:56.:38:00.

cuts in spending, we haven't seen that in parliament. A very strong

:38:00.:38:04.

message George Osborne is giving. Not the kind of honesty we got from

:38:04.:38:06.

Gordon Brown. George Osborne knows the list of Chancellors who have

:38:06.:38:10.

made it to Number Ten is short. The list of those who have been a

:38:10.:38:14.

success as Prime Minister even shorter.

:38:14.:38:17.

Now to chew over today's disclosures and in the problem vain

:38:18.:38:23.

hope of spotting a pound coin at the bottom of the sceptic tank. Are

:38:23.:38:26.

Lionel Barber editor of the Financial Times, Tracy Corrigan

:38:26.:38:30.

editor of the Wall Street Journal, and Phil Collins, who writes

:38:30.:38:36.

editorals for the Times and wrote speeches for Tony Blair before that.

:38:36.:38:43.

Do you see similarities between Osbourne and Brown? When you talk

:38:43.:38:48.

about halving the tolls of the Humber Bridge there is echos of

:38:48.:38:53.

Gordon Brown. When he talked about retarring the A3 0 3 and others it

:38:53.:38:57.

was hill tear laws. The fact that George Osborne thought he would be

:38:57.:39:02.

standing a year ago talking about road works he would sponsor is

:39:02.:39:05.

incredibly. Fatastically funny, I thought.

:39:05.:39:09.

We are into a new era of politics, aren't we, after what we heard

:39:09.:39:14.

today? Except that seven years of pain and the word "austerity" will

:39:14.:39:19.

be knocking around a long time. Probably the big difference, Jeremy,

:39:19.:39:23.

is a plan, which was set out to eliminate this deficit, structural

:39:23.:39:28.

deficit, by the end of parliament, has now proven to be impossible, we

:39:28.:39:34.

will suffer for another two years. In that sense, this is Brownian

:39:34.:39:39.

motion here, he has adapted, he had to adapt his plan to react to the

:39:39.:39:44.

reality. Are you going to try to trump that simile? I don't think I

:39:44.:39:47.

can. This Government will be in a difficult position to fight the

:39:47.:39:51.

next election. The challenge for Labour is to really argue the case

:39:52.:39:54.

that we would be in a substantially different position if their plan

:39:54.:40:00.

was in place. Although Ed Balls was feisty as ever today, he was, you

:40:00.:40:04.

know, the argument that we should have had fewer spending cuts, but

:40:04.:40:11.

still be some how cutting borrowing more effectively, was quite hard to

:40:11.:40:20.

get across. Did we learn a lesson about the impotence of Governments

:40:20.:40:23.

all over? Absolutely, no more so than the European Governments.

:40:23.:40:25.

However difficult the position of our own Government at the moment,

:40:25.:40:30.

it is a lot less trickery than the French, the Germans or the Italians.

:40:30.:40:34.

There is a few political things in here which will be important. The

:40:34.:40:38.

huge loss of public sector jobs, a public sector pay freeze again, and

:40:38.:40:43.

the reduction to tax credits. They will show up in people's lives, and

:40:43.:40:47.

eventually in the Tories' poll ratings, those things are slow burn

:40:47.:40:51.

but important. The central claim of the Tory modernising is we are all

:40:51.:40:54.

in this together. It is a lot harder to uphold that claim when

:40:54.:40:58.

you are making cuts of that nature. It is very difficult. So

:40:58.:41:02.

politically, there are some things hidden in here which will be very

:41:02.:41:05.

difficult for the Tories. It is incredibly difficult, because

:41:05.:41:09.

growth is so anaemic that you have no tax revenues. You need the money

:41:09.:41:12.

from somewhere. Who knows where it should have come from. That will be

:41:12.:41:17.

difficult for them politically. Labour can attack them on that

:41:17.:41:21.

flank. The other point I would add, this came out in the programme

:41:21.:41:25.

tonight, is the Liberal Democrats, at least through Danny Alexander,

:41:25.:41:30.

have signed up to those two extra years of public spending. He was

:41:30.:41:35.

unambiguous, I was astonished, frankly, weren't you? I was

:41:35.:41:42.

astonished he was so unambiguous about it? I think you bagged a big

:41:42.:41:46.

tiger there Jeremy. Politics has changed, the whole environmental

:41:46.:41:51.

issue? We are in a very difficult situation. There is one patrol Len,

:41:51.:41:56.

of course, before 2007 -- Parallel, of course, before the Lehman

:41:56.:42:02.

brothers crash in 2007. External events are largely driving what is

:42:02.:42:06.

happening here, sub-prime crisis and now the euro crisis. This is

:42:06.:42:10.

the dominant factor now. If you look at Britain's borrowing costs,

:42:10.:42:14.

they are much lower than Italy's. The Chancellor pointed this out,

:42:14.:42:20.

eventhough Italy has a much higher deficit. If you get this wrong,

:42:20.:42:29.

credibility earned can easily be lost. You two in particular know

:42:29.:42:32.

the world of rating agencies and how the markets view Governments.

:42:32.:42:36.

You know it well. What will they make of this, there is a lot riding

:42:36.:42:44.

on it? Let's separate the markets from the ratings agencies. They got

:42:44.:42:48.

-- they have some bad calls there. Shouldn't we care about it? We care

:42:48.:42:54.

about the way the bond market works and how the bond market evaluates a

:42:54.:42:58.

Government's credibility. I think, therefore, the Chancellor was quite

:42:58.:43:01.

right to measure his language to stick to the course. We have said

:43:02.:43:07.

that in tomorrow's paper. To confuse the message, to abandon the

:43:07.:43:10.

austerity programme would have been extremely dangerous.

:43:10.:43:15.

I think it is easy to criticise him for having only made marginal moves

:43:15.:43:21.

at the edges, that is all he had room to do in order to keep to the

:43:21.:43:25.

brief that the austerity plan had set. I think that was necessary to

:43:25.:43:29.

convince investors to continue to buy our bonds. What is your sense

:43:29.:43:34.

to how European Government also regard to what we heard today?

:43:34.:43:39.

think that European Governments aren't bothered, they have too much

:43:39.:43:42.

else to worry about what is happening here. When they look over

:43:42.:43:46.

here they probably do so with envy, we are in a considerably better

:43:46.:43:52.

situation than they are. I thought, from what he had to say

:43:52.:43:59.

about the public sector job cuts, for example, the pay freezes, the

:43:59.:44:05.

retirement age and the advancing there of. It looked to me if this

:44:05.:44:09.

was would be an unhappy country for years to come? It will be, it will

:44:09.:44:14.

be difficult for them. He prefigured that, at the end of the

:44:14.:44:16.

speech there was an interesting little question where he changed

:44:16.:44:20.

the measure of success. It is no longer about the destination we are

:44:20.:44:23.

getting to. Cutting the deficit entirely in four years, it is about

:44:23.:44:28.

the journey, going in the right direction. He's setting us up for a

:44:28.:44:31.

general election which will be we have almost cleared up the mess, we

:44:31.:44:37.

have made progress, don't let those other guys get back in there.

:44:37.:44:42.

it make life difficult for Labour? It does because they lack

:44:42.:44:49.

credibility on the central economic yes. -- Question. Osbourne cleverly

:44:49.:44:54.

managed to pin on Labour the whole of the notion that the debt is

:44:54.:45:00.

their fault. It is not true, the external factors were important in

:45:00.:45:06.

the building up of the problems in the first place. Labour has lost

:45:06.:45:09.

that argument, it is losing it all the time. Whether or not pauls

:45:09.:45:12.

Balls is right is no longer important, because Labour doesn't

:45:12.:45:17.

have credibility on it. I still think, that unless there is some

:45:17.:45:21.

other crisis and totally blows away everything we have said, that is

:45:21.:45:27.

entirely possible, given where we are. The political fall-out on this,

:45:27.:45:31.

Osbourne will stumble along. This is predicated on the notion we will

:45:31.:45:35.

have some sort of growth. It is possible that we won't be able to

:45:35.:45:39.

stagger along with just under 1% growth for the next year or so, and

:45:39.:45:44.

we will go into recession. In which case there is nothing to have to be

:45:44.:45:47.

even less room for manoeuvre in the run up to the next election. Then

:45:47.:45:54.

all bets are off? They are, but we should draw attention to the very

:45:54.:46:01.

pessimistic forecast by the new independent body, the office of

:46:01.:46:05.

budget responsibility, populated by a former tabloid journalist. These

:46:05.:46:08.

are very pessimistic, what they spell out is the capacity in the

:46:08.:46:16.

economy, where we thought we would have been in 2015, 13% of GDP lost,

:46:16.:46:23.

this is really why, as my colleague from tomorrow's FT, is talking

:46:23.:46:29.

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