01/02/2012 Newsnight


01/02/2012

In-depth investigation and analysis of the stories behind the day's headlines with Jeremy Paxman.


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Tonight, the Government has promised to crack down on tax

:00:08.:00:12.

avoidance, yet Newsnight can reveal how it hired a senior public

:00:12.:00:16.

servant on a deal toe minimise his tax bill.

:00:16.:00:22.

-- to minimise his tax bill. Students are already annoyed about

:00:22.:00:28.

the massive increase in fees, but the man who runs the Student Loans

:00:28.:00:32.

Company, had been given a deal by the Government, to avoid tax

:00:32.:00:36.

liability. It is serious, a public servant, perhaps more than anyone

:00:36.:00:41.

else, an employee of the state and Government, ought to be paying all

:00:41.:00:46.

their taxes. How could the Government endorse

:00:46.:00:51.

such an arrangement, where now all that talk of how we're all in it

:00:51.:00:54.

together. Gooden God may have lost his

:00:54.:01:00.

Knighthood, but why should the buck stop there?

:01:00.:01:04.

Pakistan spent the day trying to shake off accusations in a NATO

:01:04.:01:08.

report that it supports the Taliban. What do you think is the most

:01:08.:01:12.

striking ref laugs in the report? It is based -- revelation in the

:01:12.:01:16.

report? This is based on interviews with 4,000 captured Taliban

:01:16.:01:19.

fighters. They think they are winning, of course, there are some

:01:19.:01:22.

signs they might be right. They call this batting for Britain, when

:01:22.:01:26.

the Prime Minister went to India saying aid would generate trade.

:01:26.:01:36.
:01:36.:01:39.

Has his strategy now been shown to We are, as we have been repeatedly

:01:39.:01:44.

told by this Government, all in this together. Unless, apparently,

:01:44.:01:48.

the Government thinks you're not in it with everyone else. A Newsnight

:01:48.:01:51.

investigation has discovered that cabinet ministers agreed to an

:01:51.:01:55.

arrangement by which one of the country's best paid public servants

:01:55.:01:58.

was able to reduce his tax liability by tens of thousands of

:01:58.:02:02.

pounds. The Government is now trying to

:02:02.:02:06.

find out how many other people it might have agreed similar terms for.

:02:06.:02:10.

The official in question is the boss of the Student Loans Company,

:02:10.:02:16.

whose job, of course, involves making sure others pay their fair

:02:16.:02:23.

share. Richard Watson reports now. There are some people who seem to

:02:23.:02:27.

believe that not paying their fair share of tax is a lifestyle choice,

:02:27.:02:31.

not true. At a time of acute national

:02:31.:02:36.

austerity, the issue of tax avoidance has never been more

:02:36.:02:42.

charged. Millions of people are angered when they feel there is a

:02:42.:02:46.

wealthy group who can pay an army of tax accountants to get out of

:02:46.:02:50.

paying their fair share of tax. Government wants to take action.

:02:51.:02:54.

need to take a tough approach on wealthy individuals and individual

:02:54.:02:59.

companies, to make sure they pay their fair share. Newsnight has

:02:59.:03:02.

discovered that Government officials have helped one of the

:03:02.:03:06.

most senior public servants in the land to avoid paying tax.

:03:06.:03:10.

The man in question is Mr Ed Lester, who was brought in a couple of

:03:10.:03:14.

years ago to bail out the crisis- striken Student Loans Company. He's

:03:14.:03:23.

now one of the country's top public servants, paid by the taxpayer. His

:03:23.:03:28.

salary is worth �200,000 a year. He has struck an extraordinary deal,

:03:28.:03:33.

it is not paid into a bank account, like any other employee, minus tax

:03:33.:03:36.

and national insurance, it is paid into a private service company,

:03:36.:03:42.

based at his home address, here on the River Thames. On our kal

:03:42.:03:46.

layings he would be tens of thousands -- calculation, he would

:03:46.:03:50.

be tens of thousands pounds better off. There is no the Civil Service

:03:50.:03:55.

can act in a way that doesn't set an example for the rest of the

:03:55.:04:00.

world. So you will investigate? the allegations are true we will

:04:00.:04:06.

need to investigate. What is extraordinary is the customs and

:04:06.:04:10.

revenue officials agreed the deal. Why would a public body working

:04:11.:04:15.

directly for a Government department enter into such a deal.

:04:15.:04:18.

In 2009, the Student Loans Company was in crisis, they needed someone

:04:18.:04:21.

to tackle the crisis. Thousands of telephone calls were going

:04:21.:04:25.

unanswered, grants hadn't been paid. It was a complete mess, students

:04:25.:04:29.

weren't getting their money on time. There was a huge backlog of

:04:29.:04:34.

applications. There were a lot of calculation that were wrong. It was

:04:34.:04:39.

a complete mess. We were looking to the organisation, the Student Loans

:04:39.:04:44.

Company, to very quickly sort it out. Ed Lester seemed just the man

:04:44.:04:49.

for the job. He had a strong track record in both the private and

:04:49.:04:54.

public sectors. Here he is, to the left of the universities minister,

:04:54.:04:57.

David Willetts, after a spell as a consultant to Government, he was

:04:57.:05:01.

approached to lead the Student Loans Company in 2010, via a

:05:01.:05:04.

specialist recruitment company. It was David Willetts who was

:05:04.:05:09.

ultimately responsible for his appointment.

:05:09.:05:13.

This correspondent for the investigative journalism website,

:05:13.:05:16.

obtained a dossier of documents under the Freedom of Information

:05:16.:05:20.

Act. They reveal every twist and turn of negotiations to recruit Ed

:05:20.:05:29.

Lester for the job. What was really amazing was, he does not pay any

:05:29.:05:33.

tax or national insurance at source, yet, he is the chief executive, he

:05:33.:05:37.

is the accounting officer to parliament, he's the top man who

:05:37.:05:40.

chases hundreds of thousands, if not millions of students to pay

:05:40.:05:45.

back their loans. But some how he's not got a full-time job.

:05:45.:05:50.

The scanning was, as I described, freezing and not working.

:05:50.:05:54.

months into the job as interim chief executive, Ed Lester appeared

:05:54.:05:56.

before the Public Accounts Committee to explain to MPs how he

:05:56.:06:01.

was reforming the organisation. He also fielded questions about his

:06:01.:06:09.

pay. How much are you costing the taxpayer? My daily charge is �900 a

:06:09.:06:16.

day. That's on a normal working week of five days a week. Yes.

:06:16.:06:19.

But there was no mention of precisely how Mr Lester was being

:06:19.:06:25.

paid, or the cost of his 400-mile commute to the Student Loans

:06:25.:06:28.

Company office in Glasgow. While he shutled from Buckinghamshire to

:06:28.:06:32.

Scotland and back, his pay was transferred to the recruitment firm

:06:32.:06:36.

who hired him, they sent it on to his private service company, the

:06:36.:06:40.

one he runs from his house on the Thames. The arrangement isn't

:06:40.:06:43.

illegal, but the tax savings could be huge. With reduced national

:06:43.:06:49.

insurance payments, and other perks to. Government officials knew the

:06:49.:06:54.

deal was all about saving Ed Lester tax. In one e-mail, a senior civil

:06:54.:06:59.

servant at business innovation and skills, notes his deal is tax

:06:59.:07:06.

efficient. It was -- It was a good deal for Mr

:07:06.:07:10.

Lester, but was it within the tax rules. Some awkward questions

:07:10.:07:14.

emerged about his tax status. Could he be full-time chief executive, in

:07:14.:07:19.

charge of billions of public money, and not an employee, paying tax in

:07:19.:07:23.

the usual way. The Student Loans Company sought

:07:23.:07:28.

advice from their auditors, KPMG, they said Ed Lester should be an

:07:28.:07:34.

employee, an awkward conclusion. The senior civil servant handling

:07:34.:07:37.

Ed Lester's employment said he thought it needed to be challenged.

:07:37.:07:41.

The Student Loans Company went back to the auditors, and KPMG offered a

:07:41.:07:45.

second piece of advice. This time they said it might be possible to

:07:45.:07:48.

persuade Revenue & Customs to grant a special concession, permitting Ed

:07:49.:07:51.

Lester to be paid through his personal service company. Sure

:07:51.:07:54.

enough, the revenue wrote to the Student Loans Company, confirming

:07:54.:07:59.

the deal had been approved. The tax inspector wrote, he's happy to

:07:59.:08:04.

accept the fees paid in respect of Mr Lester's duties may be paid

:08:04.:08:07.

gross. In other words, without tax deducted at source.

:08:07.:08:12.

I think it is very odd. You would expect a civil servant, who is

:08:12.:08:16.

doing a full-time job, appointed to an office, and indeed an accounting

:08:16.:08:22.

officer, which is an anorackish, technical term, but a person who

:08:22.:08:27.

has legal responsibility for how money is spent in the body, to be

:08:27.:08:31.

paid normally with PAYE like anybody else. This story gets more

:08:31.:08:35.

intriguing, three months after the revenue approved the deal, the

:08:36.:08:38.

Student Loans Company decided they liked Ed Lester so much theyn't

:08:38.:08:42.

waed to take him on full-time. Surely as -- wanted to take him on

:08:42.:08:46.

full-time. Surely as full-time chief executive he would have to go

:08:46.:08:50.

on the books as a tax-paying member of staff.

:08:50.:08:58.

His total pay pact, including po news, would be �200,000 a year,

:08:58.:09:03.

with �28,000 on top for commuting to Glasgow and hotel stays. For the

:09:03.:09:06.

second time they agreed to pay him through the company he runs, from

:09:06.:09:13.

his home on the Thames. We asked the former Inland Revenue tax

:09:13.:09:17.

inspector, now a tax accountant, to model how much Ed Lester will be

:09:17.:09:22.

saving in tax. If he's employed he's taking a salary of �182,000,

:09:22.:09:28.

against that he has income tax of �69,000, and employees' national

:09:28.:09:38.

insurance of �7,021. His take home pay is �105,979. A lot of money,

:09:38.:09:42.

but how much better off would he be paid through his private company?

:09:42.:09:52.

So, in his pocket, he would have had �144,987. Quite a difference?

:09:52.:09:57.

significant difference. That's a difference of �40,000.

:09:57.:10:01.

These figures are based on the assumption that Ed Lester is

:10:01.:10:05.

seeking to minimise his tax bill. We can't be sure of the precise

:10:05.:10:10.

figures, because he declined to ask any of our specific questions. We

:10:10.:10:14.

asked whether he disputes that the arrangements were to minimise tax.

:10:14.:10:17.

We asked if it was appropriate for him to be paid through his own

:10:17.:10:22.

company and not PAYE, again, no answer. We asked him how much his

:10:22.:10:27.

personal service company pays in tax, no many to that either. The

:10:27.:10:37.
:10:37.:10:39.

So how much did ministers really know about Ed Lester's pay deal? A

:10:39.:10:43.

letter from the Student Loans Company to the minister for

:10:43.:10:46.

universities suggests that David Willetts was well informed. The

:10:46.:10:56.
:10:56.:11:08.

The following week, David Willetts So Government ministers had, in

:11:08.:11:12.

effect, rubber stamped a deal to help a senior civil servant with

:11:12.:11:17.

his tax efficiency. The Department of Disinnovation and

:11:17.:11:21.

skills told us, personal -- Department of Business innovation

:11:21.:11:31.

They emphasised that the deal had been approved by-election Election.

:11:31.:11:41.
:11:41.:11:44.

The Treasury is clearly concerned by our evidence. In a detailed

:11:44.:11:47.

statement, Danny Alexander has confirmed he's called for an urgent

:11:47.:11:52.

review, and his written to every single a second across Government,

:11:52.:11:57.

asking whether similar deals exist. There is to be an urgent internal

:11:57.:12:00.

audit of such appointments completed by the end of March. It

:12:00.:12:04.

will consider the appropriateness of these deals, and consider the

:12:04.:12:08.

wider costs of lost revenue to the Exchequer, when considering value

:12:08.:12:12.

for money. If such deals are uncovered, the Treasury says it

:12:12.:12:17.

will seek to unwind them. What we would want to see is whether there

:12:17.:12:21.

was a deliberate attempt to set up a tax avoidance scheme. The Public

:12:21.:12:24.

Accounts Committee will scrutinise the evidence. The chair was shocked

:12:24.:12:29.

when we showed her our dossier. is very serious. A public servant,

:12:29.:12:34.

perhaps more than anybody else, an employee of the state, and an

:12:35.:12:40.

employee of the Government, ought to be paying all their taxes in an

:12:40.:12:46.

open, proper and transparent way. Any engagment in tax avoidance by

:12:46.:12:52.

full-time, civil servants, is not acceptable.

:12:52.:12:57.

There is no sign that Mr Lester will be forced to pay income tax as

:12:57.:13:02.

a normal employee, the Treasury seems unable to change his contract,

:13:02.:13:05.

which runs until 2013. But at a time when Government is urging we

:13:05.:13:09.

are all in this together, these revelations are causing

:13:10.:13:13.

considerable unease, the question now is how many other Ed Lester's

:13:13.:13:17.

will be uncovered by the Danny Alexander review.

:13:17.:13:21.

No-one from either the Government or the Student Loans Company wanted

:13:21.:13:25.

to come and tell us why this was the best way of doing things. But

:13:25.:13:28.

joining us now to look at what was going on, we do have Richard Bacon,

:13:28.:13:33.

the Conservative MP, who sits on the Public Accounts Committee, Liam

:13:33.:13:35.

Burns, the President of the National Union of students and

:13:35.:13:38.

Nicola Preston who is a tax barrister from number five chambers.

:13:39.:13:41.

You have written to the Prime Minister, what do you want him to

:13:41.:13:45.

do? I want him to launch a full investigation toe get to the bottom

:13:45.:13:49.

of this, and to answer -- to get to the bottom of this, and answer the

:13:49.:13:55.

question at the end of your report, how many Ed Lesters are there. I

:13:55.:14:01.

saw there was a chief executive officer getting twice the salaries

:14:01.:14:04.

normally, and paid through a personal company. One wonders how

:14:04.:14:08.

much more is going on in the public sector. It is plainly unsuitable

:14:08.:14:11.

and inappropriate, it shouldn't be happening, we have to stamp it out.

:14:11.:14:15.

Even before we aired this report tonight, we have had two e-mails

:14:15.:14:18.

from people suggesting both that it was going on in a particular area

:14:18.:14:21.

of local Government, and it was going on in another area of

:14:21.:14:25.

national Government, so we don't know, but we must assume if there

:14:25.:14:28.

is an investigation no-one else in Government is quite sure? Indeed,

:14:28.:14:32.

we have a very large public sector, it is a �700 billion organisation,

:14:32.:14:36.

we have the health service, local Government, hundreds of quangos of

:14:36.:14:42.

various kinds, one fears this could be more widespread. It has been

:14:42.:14:46.

done in each case on a localised I would sis, and we need to get to

:14:46.:14:51.

the both bottom of it. Are you surprised -- to the bottom of it.

:14:51.:14:56.

Are you surprised by this? What surprises me is the HMRC gave the

:14:56.:15:02.

concession sought, in order to pay Mr Lester gross. It is unusual?

:15:02.:15:07.

is unusual in the first instance, the concession was first applied

:15:07.:15:13.

for when he was on the temporary, the interim appointment. That

:15:13.:15:16.

concession was when extended when he entered into the two-year

:15:16.:15:20.

appointment. It is unusual in someone working full-time, is that

:15:20.:15:26.

the idea? The idea behind the concession was to cover

:15:26.:15:30.

circumstances, such as directors, where trust companies might need,

:15:30.:15:35.

or trust directors might needing to in and sit on a board for a certain

:15:35.:15:42.

period of time. But they weren't employed by the company as such.

:15:42.:15:46.

Certainly the concession that does apply in wider circumstances, but

:15:46.:15:54.

in a case such as this, Mr Lester and his duties and the requirements

:15:54.:15:58.

of his appointment, all seem very consistent with him being an

:15:58.:16:05.

employee of the SLC rather than anyone else. Liam Byrne, whatever

:16:05.:16:12.

you may think of his personal tax arrangement, he did sort out the

:16:12.:16:15.

Student Loans Company, people got their loans? I don't think I'm

:16:15.:16:19.

being too demanding to think it is OK to have someone that is both

:16:19.:16:24.

competent and pays their taxes. I don't think the two are mutually

:16:24.:16:27.

exclusive concepts. There is three things from our point of view. At a

:16:27.:16:32.

time when the Government are saying they don't have the money to pay

:16:32.:16:36.

for state education, and retracting fees. The irony that the person

:16:36.:16:41.

taking our fees is purposely avoiding taxation is a kick in the

:16:41.:16:44.

teeth. Personal stewardship, we have David Willetts, minister for

:16:44.:16:47.

universities, actively trying to get, for profits, into the

:16:47.:16:51.

university sector. If you can't spot something that I think is a

:16:51.:16:58.

scam, so obvious is this, I have no confidence about you bringing for

:16:58.:17:01.

profits in. This is wider than students, this is a generational

:17:01.:17:04.

thing. When we are told the state can't afford to pay your education

:17:04.:17:07.

any more, your education maintenance allowance, that went on

:17:07.:17:14.

beer and CDs, didn't it. The fact we are all some benefit scroungers,

:17:14.:17:19.

don't look to our sector of society, there is somewhere else in society

:17:19.:17:23.

you should look. You used the word "scam", there is nothing wrong

:17:23.:17:28.

necessarily, it was agreed? I'm not calling it illegal, I don't think

:17:28.:17:32.

many people sitting at home would think, hang on, someone appointed

:17:32.:17:37.

on an interim basis, kept on long- term, on a tax efficient basis. No,

:17:37.:17:41.

I'm sorry, that is a scam of public money. I agree with that, it might

:17:41.:17:45.

not be unlawful. It could be, we will look at that. All the people

:17:45.:17:53.

in the film working in the Student Loan Company, as employee for that

:17:53.:17:58.

company, have to pay their taxes. My employees pay tax and do it to

:17:58.:18:02.

have schools and hospitals, I don't think they do it so civil servants

:18:02.:18:06.

can strive to make tax efficient arrangements for a small number of

:18:06.:18:10.

senior civil servants. This was a mistake on the part of David

:18:10.:18:13.

Willetts and Danny Alexander? was certainly a mistake on the part

:18:13.:18:18.

of whoever made the decision. Not having had the chance to know how

:18:18.:18:26.

much they genuinely knew about the, tent of their involvement. That is

:18:26.:18:30.

an important question, the public scrutiny, who was looking at the

:18:30.:18:33.

decisions, a lot of difficult questions will come David

:18:33.:18:37.

Willetts's way on this question. goes to how serious your leader was

:18:37.:18:40.

when talking about cracking down on companies that seek to avoid tax?

:18:41.:18:43.

The fact of the matter is there have been a lot of arrangements,

:18:43.:18:47.

over many years, under Governments of both parties to create

:18:47.:18:51.

situations that are tax efficient for certain individuals. It is very

:18:51.:18:57.

disful, we want a situation, I'm in favour -- distasteful, I'm in

:18:57.:19:03.

favour of lower tax, but we should all apply to the same rules. I made

:19:03.:19:07.

a cheque last week to HMRC, I didn't want to, but it is a law.

:19:07.:19:13.

You as a tax practitioner share that view? The rules are there so

:19:13.:19:16.

that people can organise their affairs to pay as little tax as

:19:16.:19:22.

possible, but it is clear in this case, firstly, that there has been

:19:22.:19:26.

no transparency about what has happened, and secondly, as I have

:19:26.:19:32.

already said, the concession that HMRC have given the SLRC, has been

:19:32.:19:37.

extended over a two-year contract. Is this the sort of thing the

:19:37.:19:39.

Public Accounts Committee ought to investigate? I agree with the

:19:39.:19:44.

chairman in the clip, that should the facts prove as they appear to

:19:44.:19:48.

be, we will need to take a look at it. I can't speak for the whole

:19:48.:19:52.

committee. Would you like to haul David Willetts before you? We don't

:19:52.:19:56.

normally have ministers in front of us, this may be an occasion we need

:19:56.:20:00.

to talk wider than the normal officials. We will want to talk to

:20:00.:20:05.

the officials writing the e-mails saying this isn't good enough, I

:20:05.:20:08.

disagree with the opinion from the accounting firm, we should try

:20:08.:20:12.

harder. It is obvious that a number of people were striving hard to

:20:12.:20:17.

create a tax efficient arrangement, that would have seemed odd toe most

:20:17.:20:21.

people. He may have lost his reputation as a banker, now he may

:20:21.:20:24.

have lost his Knighthood. But Fred Goodwin is experiencing a new

:20:24.:20:28.

career, as a football. He was booted around Westminster like an

:20:28.:20:32.

inflated pig's bladder today, as one person after another tried to

:20:32.:20:37.

use him to score points. Labour MPs who once fawned on him and his pals,

:20:37.:20:42.

wonder how many more should be simply dishonoured. Accusations of

:20:42.:20:50.

hypocrisy flew back and forth in the Commons. We were in the stands.

:20:50.:20:54.

Fred's been shredded, who's next? There are plenty more candidates.

:20:54.:20:57.

At Westminster today some senior voices were warning that the

:20:57.:21:01.

Government has created a mess. I'm concerned that there doesn't

:21:01.:21:05.

seem to have been much process here. I understand why people are angry

:21:05.:21:09.

with Gooden good, I'm not here to defend him -- Fred Goodwin, I'm not

:21:09.:21:13.

here to defend him, he was the author of his own misfortunes. But

:21:13.:21:17.

you go after one individual, and there was more than one person

:21:17.:21:23.

involved in this, there is a process that is obscure, many of us

:21:23.:21:26.

hadn't heard of the Forfeiture Committee, and it meets a week

:21:26.:21:30.

after the announcement, and he's striped of the Knighthood. It is a

:21:30.:21:33.

similar thing the Government is doing at RBS, going after one

:21:33.:21:36.

individual. There doesn't seem to be principles against which we can

:21:36.:21:41.

judge people N a country like our's, where we pride ourselves in the

:21:41.:21:45.

rule of law and due process, that is big problem for us. The point is,

:21:45.:21:50.

of course, the former Sir Fred, was not alone in his mistakes. The

:21:50.:21:53.

Business Secretary today says the case is useful as a beginning, a

:21:53.:21:59.

start of the differenciation between good and bad dankers?

:21:59.:22:05.

does help to establish the point that there were some bankers who

:22:06.:22:12.

were highly cupable, he was one of them, and they need to make a

:22:12.:22:15.

contribution. If we were in the business of

:22:15.:22:22.

degonging people, who might we start with? What about Sir tomorrow

:22:22.:22:25.

McKillop, knighted for contributions to the drug industry,

:22:25.:22:32.

he was chairman of RBS when the bank went bust. Sir kl lum

:22:32.:22:35.

McCartney knighted for services to the finance industry, he was in

:22:36.:22:38.

charge of the Financial Services Authority when all of those banks

:22:38.:22:44.

went bust. And while we're on the subject, what about Alan Greenspan,

:22:44.:22:49.

given an honourary Knighthood in 2002, the former Fed chairman was

:22:49.:22:53.

given his for contribution to global economic stability. You

:22:53.:22:56.

might have noticed that ain't looking so clever any more.

:22:56.:23:01.

The only way you can ever guarantee that you won't make mistakes is not

:23:01.:23:05.

to try anything. If that is what we want to engineer in people it is a

:23:05.:23:11.

very bad idea. You need people who will make decisions that involve

:23:11.:23:14.

risk as they all do. In those circumstances you would have to

:23:14.:23:19.

hand back your pay in the past, in some cases, or your honours n this

:23:19.:23:22.

particular case, then I would suggest they start giving out

:23:22.:23:25.

honours on elastic rather than ribbon, they will be pulling an

:23:25.:23:28.

awful lot back, people do make mistakes. It says something about

:23:28.:23:32.

where the politicians think the public is on the Goodwin Knighthood,

:23:32.:23:36.

that at Prime Minister's Questions today, not one opposition MP

:23:36.:23:40.

accused the Government of using Gooden God as a smoke screen.

:23:40.:23:44.

Although that's what many of -- Fred Goodwin as a smoke screen.

:23:44.:23:49.

Although that is what many of them think. His name wasn't even

:23:50.:23:55.

mentioned, instead the Labour leader pushed for more transparency

:23:55.:23:58.

on pay. Why is the gentleman in favour of things now in opposition

:23:58.:24:03.

of things he never did in Government, some might call it

:24:03.:24:07.

opposition, others hypocrisy. will tell him what hypocrisy is, it

:24:07.:24:11.

is saying he will stop a million pound bonus to Stephen Hester, and

:24:11.:24:16.

then nodding it through. I have to say to him, I think we

:24:16.:24:22.

have now heard it all. Because he says that the class war against the

:24:22.:24:25.

bankers is going to be led by him and his cabinet of millionaires, I

:24:25.:24:29.

don't think it is going to wash, frankly. All of this is being

:24:29.:24:33.

watched with concern in the City. Today there was a conference on the

:24:33.:24:37.

subject of rebranding banking. If you came along as an outsider, you

:24:37.:24:41.

had to be ready with a face. Because, sooner or later, someone

:24:41.:24:44.

was going to tell you that, you know, a million pounds isn't

:24:45.:24:49.

actually that much for a bonus. And you have to decide whether to nod

:24:49.:24:52.

like an unshockable man of the world, or stair at them like they

:24:52.:24:57.

are a lunatic. We have to accept the fact that we are living in a

:24:57.:25:01.

free, global market, that is not saying pay them all football-star

:25:01.:25:06.

salaries, but they have to be well paid. It has just gone too far,

:25:06.:25:11.

with the whole crisis being blamed entirely on the bankers, because a

:25:11.:25:17.

few behaved wrongly. The reality is that regulateers, central banks and

:25:17.:25:20.

politicians, were at least as much to blame for the banking crisis as

:25:20.:25:26.

the banks were. The Government has, undoubtedly, felt the pressure from

:25:26.:25:30.

this "why only Sir Fred's Knighthood in question". This

:25:30.:25:33.

afternoon they promised to do something about the fact, that

:25:33.:25:37.

Lords who are convicted criminals can keep their peerages. Get ready

:25:37.:25:41.

for a few more candidates for the shredder.

:25:41.:25:45.

David Miliband, the former Foreign Secretary, beaten by his brother

:25:45.:25:49.

for the leadership of the Labour Party, has decided his party needs,

:25:49.:25:52.

what he calls, restless re-thinking of what it is about, if it is going

:25:52.:25:57.

to win power again. He's careful, obviously, not to criticise his

:25:57.:26:02.

Government, but his contribution got, inevitably, political

:26:02.:26:08.

correspondents like David Grosseto, in a mild lather -- Grossman, in a

:26:08.:26:15.

mild lather. This is a an argument of a seven-point piece in a small

:26:15.:26:19.

circulation magazine, 7,000 copies sold. Why the fuss? I hesitate to

:26:19.:26:24.

say this with such large pictures of the Milibands over your shoulder,

:26:24.:26:29.

but not everyone in Westminster thinks that Ed Milliband is doing

:26:29.:26:35.

such a bang-up job as leader. In that context, anything his brother

:26:35.:26:39.

says except that Ed is a genius and can't help to lead us to victory in

:26:39.:26:44.

the general, has to be interpreted. In this densely-argued article for

:26:44.:26:48.

the New Statesman, there is plenty to interpret. Mr Miliband senior

:26:48.:26:53.

says Labour has a tendency to go towards reassurance in opposition,

:26:53.:26:57.

reassurance about our purpose, relevance and position, even our

:26:57.:26:59.

morals, reassurance Labour feels good, but feeling good is not the

:26:59.:27:03.

same as doing good. He says his brother gets this, that is why

:27:03.:27:07.

there is a policy review. He gives his brother credit for keeping the

:27:08.:27:11.

party together, for unity, but he says you cannot come away from

:27:11.:27:15.

reading this article without getting the impression that he

:27:15.:27:18.

doesn't think, David Miliband doesn't think the party is going in

:27:18.:27:21.

the right direction. He says this towards the end, that it is a

:27:21.:27:25.

massive risk to say there isn't much to worry about in our approach,

:27:25.:27:29.

history is coming in our direction. But the reassurance tendency

:27:29.:27:34.

suggests anyone who disagrees has abandoned principle for power. The

:27:34.:27:39.

final thing that David Brand is saying in all of this, we shouldn't

:27:39.:27:43.

under-- David Miliband is saying, in all of this, is we

:27:43.:27:48.

underunderestimate him, he hasn't gone away, he hasn't given up on

:27:48.:27:51.

winning the next election. The Government in Pakistan has

:27:51.:27:55.

spent the day blustering it is not true its Intelligence Services are

:27:55.:27:58.

helping the Taliban. You can believe them or the NATO report in

:27:58.:28:04.

which the claim is made, which is based on 27,000 interrogations of

:28:04.:28:07.

Taliban, Al-Qaeda and other prisoners. The report wasn't

:28:07.:28:10.

intended for publication, because it is not only the Pakistan

:28:10.:28:15.

Government that faces embarrassment from the findings, the report also

:28:15.:28:19.

discloses that the low you are level of violence may not be, as

:28:19.:28:23.

claipltd, the result of NATO operations -- claimed, the result

:28:23.:28:26.

of NATO operations and Government resolutions. Is the fuss justified?

:28:26.:28:30.

It is in the sense this is this highly classified survey of the

:28:30.:28:34.

Taliban, what they think they have been doing, what they think they

:28:34.:28:39.

have been achieving over the past couple of years. The material on

:28:39.:28:44.

Pakistan, yes it is important and embarrassing, we have seen some

:28:44.:28:49.

very important disclosures of this kind before. High level ones from

:28:49.:28:52.

the US, I don't think that is where the meat is. The fascinating stuff

:28:52.:28:57.

is to do with the end game. The shifting tides of poir, the way the

:28:58.:29:01.

captured Taliban suggests people are looks towards NATO's exit,

:29:01.:29:07.

trying to cut deals, that comes across clearly in the report. They

:29:07.:29:13.

are talking to the Taliban, their resilience is evident, but also the

:29:13.:29:18.

flakiness of President Karzai's administration, as NATO forces draw

:29:18.:29:28.
:29:28.:29:30.

Violence is dropping in much of the Afghan countryside, that may be

:29:30.:29:40.
:29:40.:29:42.

These deals, suggest the report, show that Afghan Government

:29:42.:29:46.

officials are already working with the Taliban in much of the country.

:29:46.:29:49.

There is not much comfort for British or American field

:29:49.:29:54.

commanders either, because it looks at one or two areas, where they

:29:54.:30:00.

have been put anything a huge effort and concludes...$$NEWLINE

:30:00.:30:06.

Taliban governance appears to remain in effect. As for what

:30:06.:30:11.

happens after 2014, when ISAF, NATO's foreign troops are no longer

:30:11.:30:21.
:30:21.:30:25.

fighting, the detainee interviews How does the disclosure of this

:30:25.:30:30.

report damage NATO? It is a classified assessment based on the

:30:30.:30:33.

intimate knowledge gained in the interrogation room. The fascinating

:30:33.:30:39.

thing, in terms of the border narrative, we have had for the last

:30:39.:30:43.

couple of years reports of progress, from the counter insurgency effort

:30:43.:30:49.

that NATO has been making. We hear violence has fallen by 40%, the

:30:49.:30:53.

British casualties have fall bin a bigger margin than that. NATO

:30:53.:30:57.

people have been saying this is due to our better counter insurgency,

:30:57.:31:02.

our more joined-up approach, our resource. From the Taliban

:31:02.:31:05.

prisoners you get a sense that in many areas they have turned down

:31:05.:31:10.

the violence, because they are also looking to a governance-based

:31:10.:31:14.

approach. They arele cooling things down and building relationships --

:31:14.:31:18.

they are cooling things down and building relationships with local

:31:18.:31:24.

tribesmen. They have had a stake in toning down the violence themselves.

:31:24.:31:30.

NATO responded vociferously. insurgency is on the back foot. We

:31:30.:31:35.

have pressurised them over the summer and taken vast amounts of

:31:35.:31:41.

land out of their hands. We have detained a number of them, and the

:31:41.:31:46.

interviews are an element of this report. We don't see any reason to

:31:46.:31:51.

take these findings of the investigation to reconsider or

:31:51.:31:57.

readjust our findings. Joining us now is Michael Semple, a former

:31:57.:32:01.

deputy EU envoy to Afghanistan, who was expelled from the country for

:32:01.:32:06.

talking to the Taliban. He's now at Harvard from where he joins us.

:32:06.:32:11.

Were you surprise bid anything in this report, Mr Semple -- surprised

:32:11.:32:15.

by anything in this report? I was pleased rather than surprised.

:32:15.:32:20.

Pleased that NATO is taking the trouble to listen to what these

:32:20.:32:23.

gentlemen are saying. They will have learned lots more useful

:32:24.:32:28.

things out of this, rather than the strange opinion polls they finance.

:32:28.:32:33.

Do you think the Taliban, to any extent, deluding themselves in what

:32:33.:32:42.

they are telling interrogators? That is a good question, when the

:32:42.:32:45.

fighters talk, of course there is an awful lot of bluster there. The

:32:45.:32:49.

position is not as rosy on the battlefield as they describe.

:32:49.:32:54.

However, if some of them actually believe this, this is what

:32:54.:32:58.

motivates them to go on and fight and be prepared to die. It does

:32:58.:33:03.

count what they think and say. assumption that is made on reading

:33:03.:33:06.

this accumulation of material, is that there is, in the way there is

:33:06.:33:14.

with the political parties, a coherence of view, and one ideology,

:33:14.:33:19.

and one agreed means of proceeding, is that actually true in the

:33:19.:33:28.

Taliban? Yes, and no. Of course people fight for various different

:33:28.:33:32.

reasons, and there are different factions inside the Taliban, but

:33:32.:33:36.

one important point to come out of this, is that these thousands of

:33:36.:33:39.

fighters have made it absolutely clear they anticipate that there

:33:39.:33:43.

will be a struggle for power. This is not just about fighting to get

:33:43.:33:47.

foreign troops to leave Afghanistan, this is about a struggle for power,

:33:47.:33:50.

which some of them perhaps deluding themselves, expect they can win,

:33:51.:33:59.

when NATO is off the scene. So what do you imagine to be the

:33:59.:34:05.

outcome, what will happen? Broadly, there are two scenarios as we go

:34:05.:34:08.

forward in Afghanistan over the next two or three years. Either

:34:08.:34:13.

there is the happy scenario, where the political process which is now

:34:13.:34:16.

tentatively getting under way, it leads to some kind of a deal,

:34:16.:34:22.

Taliban coming into the political system. And you have some kind of

:34:22.:34:27.

stability, as NATO draws down, or the other scenario, there isn't a

:34:27.:34:31.

deal, that NATO does draw down, the Taliban stay in the fight, and

:34:32.:34:35.

Afghanistan deteriorates in into civil war which could last for many

:34:35.:34:41.

years to come. Do you want to call it one way or the other? Well, I

:34:41.:34:45.

think, frankly, the continued conflict, the civil war is rather

:34:45.:34:49.

more likely than the happy outcome. There are still various levers that

:34:49.:34:53.

people in power can pull to increase the chances of getting a

:34:53.:34:57.

happenyo outcome and an end to the conflict in Afghanistan that people

:34:57.:35:00.

so desire. I'm sorry for the delay on the

:35:00.:35:08.

satellite there. We and many others have asked before why the

:35:08.:35:12.

Government takes hundreds of millions from British tax-payers to

:35:12.:35:22.
:35:22.:35:22.

give India aid each year, when the country has a enviable growth and a

:35:22.:35:26.

space programme. It is thought to be good for British business. The

:35:26.:35:29.

example the Prime Minister gave was was attempts to sell warplanes to

:35:29.:35:33.

the Indian air force. Today's discovery that the Indians are

:35:33.:35:37.

showing their gratitude by buying French aircraft instead, is not

:35:37.:35:43.

what you would call a ringing endorsement of the strategy. Just

:35:43.:35:45.

after becoming Prime Minister, David Cameron went to India. The

:35:45.:35:53.

aim was to drum up trade. He went mobhanded, Dave's pos

:35:53.:36:03.

secluded George. What what Vince went along too? Companies operating

:36:03.:36:09.

out of Britain need to do so. Cabinet ministers included Andy,

:36:09.:36:12.

Andrew Mitchell, the development secretary. The aim of the trip was

:36:12.:36:18.

to boost exports, chiefly to sell the Indians Typhoon fighter planes,

:36:18.:36:21.

for his part, Mr Mitchell spoke of the significance of Britain's aid

:36:21.:36:31.
:36:31.:36:31.

programme to India, reportedly adding:

:36:31.:36:36.

The meaning was fairly explicit, buy our aircraft and we will

:36:36.:36:40.

continue to provide you with aid. I think it was, as I said, it was not

:36:40.:36:47.

a very subtle way of saying that. Would deny that emphatically,

:36:47.:36:52.

saying there was not that leakage there? I don't expect anything else.

:36:52.:36:55.

In parliamentary select committee last week, Mr Mitchell explained

:36:55.:37:01.

how he saw his role. The specific point you make about Typhoon, is

:37:01.:37:06.

when I travel, I regard myself as a cabinet minister, batting for the

:37:06.:37:10.

whole range of British interests, not just development. And certain

:37:10.:37:16.

low, wherever I go I seek to promote British interests, in

:37:16.:37:20.

whatever form they come. The issue here is aid is supposed to be for

:37:20.:37:24.

the relief of poverty, and by law, it should not be used to gain

:37:24.:37:28.

commercial advantage. When Andrew Mitchell talks of aid and trade and

:37:28.:37:32.

relationships in the round, others say it shows you just doesn't get

:37:32.:37:36.

it. There is no round, and shouldn't be any round. We are

:37:36.:37:39.

extremely worried as to how the Government has been behaving on

:37:39.:37:42.

this. Over the last few years you have seen a perversion of British

:37:42.:37:46.

aid, it has been drawn away from the needs of recipient companies

:37:46.:37:51.

and the needs of the poor. Instead it is used more and more to serve

:37:51.:37:55.

the needs of British interest or strategic interests. In Afghanistan,

:37:55.:38:00.

Pakistan, the aid is needed in those countries, increasingly it

:38:00.:38:04.

has been used to back up British strategic and security interests,

:38:04.:38:11.

rather than the needs of the poor. What is wrong with that? It is the

:38:11.:38:17.

beginning of a slippery slope. There were questions raised as

:38:18.:38:22.

India's position as the leading recipient of British aid. With more

:38:22.:38:30.

billionares than Britain, and high GDP, they do they need millions in

:38:30.:38:36.

development cash? It is a controversial topic, India needs

:38:36.:38:40.

the aid because it is doing well economically. You have a lot of

:38:40.:38:46.

people surviving on less than �1 a day, very, very poor people?

:38:46.:38:51.

have people living on less than a dollar a day, the pound is

:38:51.:38:56.

ambitious. Out of every rupee, only 15% of it actually reaches the

:38:56.:39:03.

people it is meant to reach. The 85% is syphoned off by officials.

:39:03.:39:08.

Corruption is the problem. It is not that there is not enough money

:39:08.:39:12.

going around, or not enough food, or grain going around. It is just

:39:12.:39:21.

that it disappears into corrupt pockets.

:39:21.:39:25.

Mr Cameron may have batted for Britain with Mr Mitchell as his

:39:25.:39:29.

partner, but it seems the Indians want to buy their jets from France

:39:29.:39:35.

instead. It is just not cricket. With us in the studio is Alpesh

:39:35.:39:39.

Patel, a board member of the UK India Business Council, we're

:39:39.:39:44.

joined from Paris by Ian Birrell, a former speechwriter to David

:39:44.:39:50.

Cameron, and contributing editor. At first sight this outcome with

:39:50.:39:54.

the planes doesn't look a strategic success, does it? I think to

:39:54.:40:00.

continue the cricket metaphor, I think that Andrew Mitchell has been

:40:00.:40:05.

caught off. Britain's aid policies now look absurd, and no more so in

:40:05.:40:11.

India, we are giving �1.2 billion to a country that gives away �1.7

:40:11.:40:15.

billion in aid itself, which in decade will be bigger than the

:40:15.:40:19.

British economy. And there is a fantastic record of aid going

:40:19.:40:24.

missing. Take one recent example, Britain funded the 8,000

:40:24.:40:28.

televisions in Indian schools, none of them turned up. Even if they had,

:40:28.:40:31.

most of the schools didn't have electricity. You don't support

:40:31.:40:36.

thised aid policy do you? I do, the reason for it is, not because India

:40:36.:40:40.

can't afford to look after its own people. It chooses not to through

:40:40.:40:43.

incompetence and corruption, which is why Britain and countries like

:40:43.:40:48.

Britain have to step in. To protect them from their own Government?

:40:48.:40:51.

to look after Indian citizens. That is the problem. The Indian

:40:51.:40:54.

Government does not look after, for instance, children under five, half

:40:54.:40:58.

of them are malnourished in India. If you could get the Indian

:40:58.:41:02.

Government to do something, Britain wouldn't need to provide. It is an

:41:02.:41:07.

Indian problem? It is, but it becomes our problem when a global

:41:07.:41:11.

player and looking for countries to assist. Be India is one of those,

:41:11.:41:14.

which sadly needs help because its own Government doesn't provide it.

:41:14.:41:19.

What do you make of Andrew Mitchell's argument that some how

:41:19.:41:23.

there is self-interest in this, that some how if we give India aid,

:41:24.:41:27.

they will reciprocate by buying our goods? I think we have seen their

:41:27.:41:33.

response to that today. The looming decision over the fighter planes.

:41:33.:41:38.

But to pick up Mr Patel's point. The problem with aid is it does the

:41:38.:41:41.

exact opposite, it undermines the accountability of Governments. It

:41:41.:41:45.

has been shown time and again to encourage corruption, and also to

:41:46.:41:49.

ensure that Governments rely on money abroad, rather than decent

:41:49.:41:55.

public services. One Harvard medical school study found

:41:55.:42:00.

countries when given more aid for their health services spent less.

:42:00.:42:04.

The Indians don't feel any great obligation toe us, when it comes to

:42:04.:42:08.

the great decision about warplanes today and yesterday. They don't

:42:08.:42:11.

feel any obligations as a consequence of the aid they have

:42:11.:42:14.

been given from this country? look at the two things separately.

:42:14.:42:20.

The aid goes to children who are malnourished, it doesn't go to the

:42:20.:42:23.

politicians. The politicians...Andrew Mitchell was

:42:23.:42:27.

the man that said the two things were linked? You would like to

:42:27.:42:32.

think a Government does look on you favourably. The Government has shot

:42:32.:42:39.

itself in the foot. It makes no odds to British

:42:39.:42:46.

Aerospace losing or winning this BAe contract. India has chosen a

:42:46.:42:53.

plane that has no deterrent, so the ones cheering is the Pakistani air

:42:53.:42:58.

force. In the round there is some relationship? What I would defend,

:42:58.:43:02.

if I'm doing something good by providing aid to people who need it.

:43:02.:43:06.

And as a result of which, a Government may hopefully look

:43:06.:43:10.

favourably upon me, then that is an added benefit of aid. I'm not

:43:10.:43:15.

saying that I am able to make the direct payment. It is irrelevant to

:43:15.:43:19.

the initial judgment as to whether a country deserves aid? The initial

:43:19.:43:23.

and most important thing is whether or not those people on the ground

:43:23.:43:26.

deserve and need the aid. They do, because their own Government isn't

:43:26.:43:30.

looking after them. As a result of that aid, you can lean on the

:43:30.:43:34.

Government and say we are helping your people and expect to be looked

:43:34.:43:37.

on favourably. That is an addition tkwral benefit, I wish it was

:43:37.:43:41.

direct, where I could both look after the people and buy my planes.

:43:41.:43:45.

It is the Indian Government which has led down its own country by

:43:45.:43:50.

buying a worse product than the Typhoon. What is wrong with Mr

:43:50.:43:56.

Patel's argument? The trouble is Britain's aid policies are looking

:43:56.:43:59.

increase league threadbare, we are increasing the budget so far and so

:43:59.:44:05.

fast, they are running out of ideas to defend T it is poured out there,

:44:05.:44:08.

encouraging corruption, breaching accountability of Governments. Not

:44:08.:44:13.

get to go the sources it is meant to be doing. Increasing low you are

:44:13.:44:17.

hearing voices in Africa and Asia saying please don't give us this

:44:17.:44:22.

aid and stop these patronising and outdated policies. The future

:44:22.:44:25.

belongs to trade and issues like that, and Britain tackling

:44:25.:44:29.

corruption at home, and stopping the flow of money coming out,

:44:29.:44:34.

stolen from some developing nations, and ending up in British bank

:44:34.:44:38.

accounts and handled by British legal firms, and being turned into

:44:38.:44:41.

British property. This is where the Government could do more good,

:44:41.:44:46.

rather than these very old fashioned patronising approach

:44:46.:44:52.

saying we can save your countries. Do you think there is a vanity in a

:44:52.:44:56.

country like our's, thinking this is some responsibility we have in

:44:56.:45:02.

the world, when in fact we are shortly going to be outpaced by a

:45:02.:45:08.

country India? It looks ludicrously outdated, if it worked there would

:45:08.:45:13.

be wrong with it. A doesn't work, this is the legacy of live aid,

:45:13.:45:16.

that we have a generation of politicians that believe some how

:45:16.:45:19.

the west is the saviour of the world, and here we are stagnating

:45:19.:45:24.

in the west. While there is rampent economic growth in Africa, Latin

:45:25.:45:30.

America and much of Asia. We look increasingly ridiculous with old

:45:30.:45:33.

fashioned aid policies. What do you make of that argument? It is wrong,

:45:33.:45:39.

when I go there every two months I do to India, and look and see how

:45:39.:45:45.

the aid is doing through the NGOs today, for people. We are not

:45:45.:45:49.

looking at changing corruption over decades, by stopping aid today, it

:45:49.:45:53.

impacts those kids today. It doesn't make a jot of difference to

:45:53.:45:56.

the politicians whether or not we give 5, they are already not

:45:56.:46:06.

looking after the people on the ground -- aid, they are already not

:46:06.:46:09.

looking after the people on the ground. When you look into

:46:09.:46:14.

countries like India, they are a very poor nation.

:46:14.:46:18.

They are shortly going to have a bigger economy than us? Sadly, if

:46:18.:46:22.

only they would manage it to look after their own people. If we could

:46:22.:46:31.

use that money to tell politicians to better use that aid. But sadly

:46:31.:46:41.
:46:41.:46:59.

it is going to those who don't need That's all from Newsnight tonight,

:46:59.:47:09.
:47:09.:47:35.

tomorrow emlow will be here. Compared to some parts of Europe we

:47:35.:47:39.

can't complain, the cold isn't as extreme. It will be a frosty start

:47:39.:47:44.

for many of us. Bright and sunny for most, cloud towards even parts

:47:44.:47:49.

of England. A light flurry of snow for east Yorkshire, and

:47:49.:47:56.

Lincolnshire around the wash. East Anglia as well. More southern

:47:56.:47:59.

counties will be dry and bright with sunshine as we start the day.

:48:00.:48:03.

That is where they will stay through the afternoon as well. Over

:48:03.:48:08.

the high ground it will probably stay cold throughout the day.

:48:08.:48:12.

Subzero for South-West of England, high ground of Wales too. Lots of

:48:12.:48:16.

sunshine to compensate. Cloud floating into eastern parts of

:48:16.:48:21.

Northern Ireland at times, and for south western parts of Scotland

:48:21.:48:24.

cloudier, dry and more sunshine, across the north and east of

:48:24.:48:27.

Scotland, barely above freezing. It stays that way through the rest of

:48:27.:48:34.

the week, across northern areas, dry and bright, crisp and sunny. In

:48:34.:48:39.

the south predominantly dry and bright. Snow showers across the

:48:39.:48:43.

south-east. Light covering for the likes of north Kent. The weekend,

:48:43.:48:47.

which continues to give us forecasters a bit of a headache. As

:48:47.:48:51.

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