22/05/2012 Newsnight


22/05/2012

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


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Economy in trouble, the IMF chief says she still believes the deficit

:00:13.:00:17.

cutting must go on. But Lagarde warned the Chancellor that Plan B

:00:17.:00:20.

might soon be needed, more money printing by the Bank of England,

:00:20.:00:22.

even cuts in VAT or national insurance.

:00:22.:00:30.

We have got the Treasury, and the opposition, live in the studio.

:00:30.:00:34.

Lucas Papademos, the former Greek Prime Minister, talks -- George

:00:34.:00:40.

Papandreou, the former Greek Prime Minister, talks to Newsnight

:00:40.:00:47.

exclusively. What will happen when people say, well Greece did this,

:00:47.:00:53.

why not anyone else. Also tonight:

:00:53.:01:01.

Can the John Lewis model save the British taxpayer. I don't feel the

:01:01.:01:05.

need to move our position, I think we pay people enough. When you come

:01:05.:01:08.

to work for the partnership, it is about more than just pay.

:01:08.:01:11.

Julie Meyer is here to debate whether the idea is being knowingly

:01:11.:01:21.
:01:21.:01:23.

oversold. Good evening, the economy may be

:01:23.:01:32.

sinking no a second recession, but the romance still seems to be

:01:32.:01:36.

blooming. George Osborne remains "dear George", Christine Lagarde

:01:36.:01:42.

paid tribute to him and his effort to cut the deficit. That was cited

:01:42.:01:51.

Be Here from the Treasury, and the opposition and the opposition in a

:01:51.:01:58.

moment. First this. If only the people who run The

:01:58.:02:00.

Chelsea Flower Show were running the economy, there is no problem

:02:01.:02:05.

with growth here, even in the least likeliest circumstances, like up a

:02:05.:02:08.

ZAF folding tower. So much of British politics now is about

:02:08.:02:16.

growth, and who has the right plan for the economy. Not surprisingly -

:02:16.:02:20.

- scaffolding tower. So much of British politics is now about

:02:20.:02:24.

growth, who has the right plan for the economy. Today's IMF report has

:02:24.:02:27.

something for everyone in it, over there in the Treasury it will point

:02:27.:02:31.

to you the bits where it says the UK economic policy mix is about

:02:31.:02:36.

spot on, as is the Treasury's emphasis on definite reduction. The

:02:36.:02:39.

opposition, though, will probably direct you to the bits in here

:02:39.:02:43.

where it says how badly the UK economy is currently

:02:43.:02:47.

underperforming, and that if this continues, well, the Government may

:02:47.:02:52.

have to alter its course in terms of deficit reduction.

:02:52.:02:56.

Until not that long ago, Christine Lagarde was the French Finance

:02:56.:03:01.

Minister, and given the state of the eurozone, not everyone thinks

:03:01.:03:03.

this is necessarily any qualification for passing judgment

:03:03.:03:07.

on other economies. But, nonetheless, her appearance at

:03:07.:03:11.

the Treasury this morning was eagerly attended. In essence, her

:03:11.:03:14.

message was that the UK has done the right things, but, it is just

:03:15.:03:19.

that we're getting the wrong results. Unfot in thely the

:03:19.:03:24.

economic recovery -- unfortunately, the economic recovery in the UK has

:03:24.:03:31.

not taken hold and uncertainty bounds. Growth is too slow and

:03:32.:03:37.

unemployment, including youth unemployment, is too high. Policies

:03:37.:03:41.

to bolster demand, before low growth becomes entrenched, are

:03:41.:03:44.

needed. Policies like cutting interest rates from where they are

:03:44.:03:47.

now, which is at virtually nothing, to actually nothing.

:03:47.:03:50.

Plus, another bout of quanative easing.

:03:50.:03:56.

And, if all that doesn't work, well it is time for a new plan. If the

:03:56.:04:02.

economy turns out to be significantly weaker than forecast,

:04:02.:04:09.

fiscal easing should be ard. Again, the measure -- considered. Again,

:04:09.:04:12.

the focus would have to be on growth and lowering unemployment.

:04:12.:04:16.

This would be a good use of the hard-won credibility of fiscal

:04:16.:04:21.

policy and institutions in the UK. The IMF hasn't said it is time for

:04:21.:04:25.

a full scale Plan B, slowing the pace of cuts, and spending more

:04:25.:04:29.

money and borrowing it from the markets. But what it has said, is

:04:29.:04:32.

that the Government can and should use fiscal policy to stimulate

:04:32.:04:36.

growth. It can do this by cutting measures that have a low impact on

:04:36.:04:42.

growth, such as transfers to the better-off, perhaps, Winter Fuel

:04:42.:04:47.

Payments to the better-off, and tax contributions by the top earners,

:04:47.:04:51.

and use that money to invest in infrastructure for the UK, and a

:04:51.:04:55.

direct shot in the arm for the UK. The Chancellor declared himself

:04:55.:04:59.

delighted with the assessment. Particularly coming on the day that

:04:59.:05:01.

inflation dropped to its lowest level for two years. This morning

:05:01.:05:06.

we had the news that inflation was down, and within 1% of the Bank of

:05:06.:05:11.

England's target, falling from 3.5% to 3%. It means that, for the first

:05:11.:05:15.

time since I became Chancellor, I have not this morning received the

:05:15.:05:19.

letter from the governor of the Bank of England, explaining why

:05:19.:05:22.

inflation is off target indeed, it is the first time since 2009 this

:05:22.:05:27.

has happened. This brings welcome relief to

:05:27.:05:32.

families on tight budgets. surprisingly, Labour didn't share

:05:32.:05:36.

this assessment. The Government has to say they got it wrong. The plan

:05:36.:05:40.

didn't work, they need a more balanced approach, that says, yes,

:05:40.:05:45.

tough decisions on spending and tax, but without jobs and growth we

:05:45.:05:50.

can't get the deficit down. We said a temporary cut in VAT, the IMF

:05:50.:05:54.

agrees, bring forward infrastructure, I agree, help for

:05:54.:05:57.

small businesses, things the Chancellor should do now. What

:05:57.:06:00.

matters politically is what the public make of all this. Labour's

:06:00.:06:05.

top team were today touring Olympic venues, but voters don't seem ready

:06:05.:06:09.

to hand them any economic gold medals yet. Although they are

:06:09.:06:13.

closing on the Government. The Conservatives have a seven-

:06:13.:06:17.

point lead over Labour, over which of the two parties people most

:06:17.:06:21.

trust to run the economy. We have been asking people also whether or

:06:21.:06:26.

not they support what is known as Plan A or Plan B, with the deficit

:06:26.:06:31.

reduction should be slower than the Government is proposing or whether

:06:31.:06:33.

they support the Government's plan. People throughout the parliament

:06:33.:06:38.

has been very split on it, 50-50 split, currently people are still

:06:38.:06:42.

trusting the Conservatives more than Labour to run the economy.

:06:42.:06:45.

Politically, probably the most significant thing said all day was

:06:45.:06:50.

during the Q & A session at the Treasury. We can assume ministers

:06:50.:06:55.

are trying to work out how to get this on an election poster. When I

:06:55.:07:01.

think back to May 2010, when the UK deficit was at 11%. I tried to

:07:01.:07:07.

imagine what the situation would be like today, if no such fiscal

:07:07.:07:12.

consolidation programme had been decided. I shiver.

:07:12.:07:17.

Chloe Smith from the Treasury is here, first we talk to Rachel

:07:17.:07:26.

Reeves, shadow Treasury Minister. Strong consolidations under way,

:07:27.:07:30.

and the deficit reduction remains essential. They couldn't be any

:07:30.:07:36.

clearer, are they wrong? Definite reduction is important, but you

:07:36.:07:40.

can't do that without jobs and growth. That is why this Government

:07:40.:07:44.

are now borrowing �150 billion more than they had planned, because the

:07:44.:07:50.

economy is in a double-dip recession, unemployment is at 2.6

:07:50.:07:53.

million, and youth unemployment at a record high. If you have more

:07:53.:07:57.

people out of work getting benefits and fewer people paying taxes, it

:07:57.:08:00.

makes it hard Tory reduce the deficit. You heard from George

:08:00.:08:04.

Osborne today, and was it wrong? Christine Lagarde has said before

:08:04.:08:07.

that growth is absolutely essential, to get the public finances back in

:08:07.:08:11.

order. You need growth to get the economy back on track. That is what

:08:11.:08:15.

Labour have been arguing for consistently. But what Christine

:08:15.:08:19.

Lagarde is saying. She's barking up the wrong tree today, is that what

:08:19.:08:23.

you are saying? Christine Lagarde and the IMF today are saying, is

:08:23.:08:27.

you need to have plans to boost growth, unless you are going to

:08:27.:08:30.

have low growth entrenched. The real risk is, that the policies

:08:30.:08:33.

that the Government have assumed, which is cutting too far and too

:08:33.:08:37.

fast, have choked off growth, and going to cause long-term damage to

:08:37.:08:40.

our economy, because you have people out of work, you have now

:08:40.:08:43.

got long-term unemployment at the highest rate for a generation.

:08:43.:08:47.

heard what she said, she said the whole idea that she was left with

:08:47.:08:52.

in May 2010, if no such programme had been implemented, made her

:08:52.:08:57.

shiver? Yes, and Alistair Darling's programme for deficit

:08:57.:09:00.

reduction...Wasn't Going to come in for another year after, that it

:09:00.:09:05.

made her shiver? That is not the case. Alistair Darling's plan for

:09:05.:09:08.

deficit reduction, would have seen the deficit come down by more.

:09:08.:09:13.

would not have had any cuts until 2011? That is not the case.

:09:13.:09:16.

Alistair Darling's programme for deficit reduction, would have

:09:16.:09:19.

halved the deficit during the course of this parliament. Now the

:09:19.:09:23.

Government's plans are so off track that they are now borrowing more

:09:23.:09:25.

than the plans that Alistair Darling left in place. That is

:09:25.:09:28.

because this Government have failed to secure the recovery that you

:09:28.:09:33.

need to get the deficit down. So you do need a deficit reduction,

:09:33.:09:36.

but this Government aren't achieving what they set out to

:09:36.:09:38.

achieve, because they have unemployment too high, and because

:09:38.:09:42.

the economy is back in recession, because of the skhoiss that this

:09:42.:09:46.

Government made, -- choices that this Government made, it is causing

:09:46.:09:49.

long-term damage, as Christine Lagarde has said, to the British

:09:49.:09:53.

economy. Isn't the worry for you, when she talks in those terms about

:09:53.:09:56.

her idea of what would have happened in May 2010, when Labour

:09:56.:10:02.

had left power, sending shivers down her back, she echos many

:10:02.:10:06.

people in the public who think that is exactly the state that Labour

:10:06.:10:09.

would be leaving us in now? Christine Lagarde is right, if

:10:09.:10:14.

there hadn't been a plan for deficit reduction, and the deficit

:10:14.:10:17.

had stayed at the levels it was after the global financial crisis,

:10:17.:10:22.

that would be very worrying indeed. But as I said, Alistair Darling's

:10:22.:10:26.

plans for deficit reduction, would have included increases in taxes.

:10:26.:10:31.

We would have kept the 50p rate of tax, which has brought in �3

:10:31.:10:35.

billion. You would bring that in? We are voting against it in the

:10:35.:10:37.

budget, which is going through parliament at the moment. As a

:10:37.:10:42.

policy you would bring it back in? We wouldn't be getting rid of it.

:10:43.:10:47.

It is gone, you would bring it back in? In the budget we are voting not

:10:47.:10:51.

to go ahead with it, 2 it hasn't gone yet. When the vote comes back

:10:51.:10:56.

to rplt pa, we will vote against the reduction -- parliament, we

:10:56.:11:02.

will vote against the reduction in a policy that gives money to

:11:02.:11:06.

millionaires. That is one policy to reverse, while this Government is

:11:06.:11:10.

giving money away to the people who need it least.

:11:10.:11:15.

I know you didn't want to debate directly, Chloe Smith, but the IMF

:11:15.:11:19.

there said the British economy had been flat, it hasn't been flat, has

:11:19.:11:24.

it, it has been in recession is, we have shrunk, you dream of flat,

:11:24.:11:28.

probably? There is no masking the difficult circumstances I think

:11:28.:11:35.

that face us. I would be delighted to debate Rachel on any day of the

:11:35.:11:40.

week on some of the confusion that she laid out. You refused to debate

:11:40.:11:43.

on the programme, if you want to, great, you declined that

:11:43.:11:47.

opportunity. The circumstances that face us include the on going

:11:47.:11:51.

eurozone crisis, very difficult, indeed also global oil prices, very

:11:51.:11:55.

difficult. There are a number of things going on at present which do

:11:55.:12:00.

mean there are challenges to the UK economy. The IMF's view today is

:12:00.:12:03.

crystal clear, which is this Government has taken the

:12:03.:12:07.

appropriate actions. We are on track, says the OECD as well. Takes

:12:07.:12:11.

down the deficit is incredibly important. We have already removed

:12:11.:12:14.

a quarter of the debt that Labour left. I'm wondering how much

:12:15.:12:20.

attention to you pay to the IMF, given they calculated back in

:12:20.:12:23.

September that there was a 17% chance of us going into recession,

:12:23.:12:27.

we were practically in T why are you taking these reductions and

:12:27.:12:31.

saying you cut it by a quarter? Because the latter statement,

:12:31.:12:36.

excuse me, the latter statement is true. You have cut the deficit not

:12:36.:12:41.

the debt? The deficit indeed is down by a quarter, that is what we

:12:41.:12:44.

are tackling. The debts keep on going up, that is the point? We are

:12:44.:12:50.

on track indeed for both of the targets we have set ourselves

:12:50.:12:53.

fiscally speaking. The OECD confirms we are on track. I'm

:12:53.:12:58.

quoting them there. Those two reports today show we are taking

:12:58.:13:01.

the appropriate action. The OECD report is interesting, it is there

:13:01.:13:05.

they confirm the actions we are taking are right for growth in the

:13:05.:13:10.

short and long-term. The IMF report again shows the credibility we have

:13:10.:13:12.

earned, the space we have earned for ourselves and the British

:13:12.:13:17.

economy, putting it back on track, allows us to turn to jobs' measures,

:13:17.:13:21.

such as supporting more infrastructure, supporting houses

:13:21.:13:25.

and businesses. You are pretty happy with where things are, you

:13:25.:13:32.

say we are back on track? I quote the EOCD as being on track for the

:13:32.:13:38.

plan, but circumstances arele cha eings. The report today shows our -

:13:38.:13:42.

- are challenges. The report today shows our plans are right.

:13:42.:13:47.

don't need a back up plan? challenges facing us now are very

:13:47.:13:51.

serious, the actions we are taking now are the right ones. So you

:13:51.:13:56.

don't need a back-up plan? Government keeps track of the

:13:56.:14:00.

circumstances at random. Are you privately talking about things you

:14:00.:14:03.

must implement if this goes wrong? Any Government, of course, keeps a

:14:03.:14:06.

track of what goes on. Any Government has sets of plans. Our

:14:06.:14:10.

plans for now are the right one, they are taking the right actions.

:14:10.:14:14.

But what are those plans that are some where down the pipeline. You

:14:14.:14:19.

heard Lagarde there talking about the need, possibly to consider VAT

:14:19.:14:22.

cuts, national insurance cuts, are these part of what you might call

:14:22.:14:26.

your Plan B? I think Christine Lagarde was clear today in the

:14:26.:14:31.

point, she thought those policies may come into their own. Do you?

:14:31.:14:35.

The point is, today's actions are the right ones for where we are, we

:14:35.:14:39.

need to keep control of the deficit. Unlike the uncosted confusion you

:14:39.:14:43.

have heard from Rachel and others today. We need to keep track on

:14:43.:14:47.

those plans. Why is the head of the IMF thinking of a down-the-line

:14:47.:14:52.

tragedy for you, when it sounds as if you are not. Why is George

:14:52.:14:56.

Osborne making contingency plans for the eurozone f he can't admit

:14:57.:15:01.

he's making con-- if he can't admit he's making contingency plans for

:15:01.:15:05.

his own economy here? Circumstances are very challenges, the eurozone

:15:05.:15:09.

is one of the largest of those things. If you look at Christine

:15:09.:15:13.

Lagarde said, the shiver that went down her spine is at the deficit

:15:13.:15:18.

Labour left us. That was at Greek levels. If we had not acted fa, we

:15:18.:15:21.

don't continue to act to keep the economy on track, that is where

:15:21.:15:24.

potential trouble could come from. It is that action that is

:15:24.:15:30.

appropriate and right today that the IMF confirms. You heard Lagarde

:15:30.:15:33.

saying clearly, that she would urgently consider more action, the

:15:33.:15:36.

need for quanative easing, would you welcome that? Any such decision

:15:36.:15:40.

would be operationally for the Bank of England to do, of course, but it

:15:40.:15:44.

is, indeed, one of the next lines of defences. The Chancellor has to

:15:44.:15:50.

approve that, would you like to see him say that? He has said today it

:15:50.:15:54.

is one of the obvious tools. It is one of the tools available in the

:15:54.:15:58.

economy at present. It can simulate demand, there are a number of

:15:58.:16:02.

things we need to work on in the British economy, that may be one of

:16:02.:16:07.

the tools, others are getting credit to businesses, more

:16:07.:16:11.

infrastructure and housing. bring you back in, what was the

:16:11.:16:15.

point you -- I will bring you back in, what was the point you wanted

:16:15.:16:21.

to make? It is staggeringly complacent, we are �150 billion off

:16:21.:16:24.

track when it comes to the economy, and the economy is in a double-dip

:16:24.:16:28.

recession. That is not on track, that is seriously off track. The

:16:28.:16:32.

IMF have said, for almost a year now, if things get worse, they have

:16:32.:16:37.

to think about a Plan B. Last word for you, Chloe Smith. Are you

:16:37.:16:40.

thinking about Plan B, what will that be, people are desperately

:16:40.:16:45.

crying out for it. I cite the OECDn that we are taking the right plans

:16:45.:16:48.

and the appropriate actions for now, that has made Britain aself and

:16:48.:16:54.

credible place. -- a safe and credible place.

:16:54.:16:57.

economic secretary to the President, we have just done that, let's move

:16:57.:17:05.

on. The leader of Greece's far left anti-austerity party headed out and

:17:05.:17:10.

said they would remain in the euro if they won the election. Alexis

:17:10.:17:15.

Tsipras is out looking for support. Bill Clinton offered strong words

:17:15.:17:20.

of advice on day 959 of the Greek crisis, we are counting. You cannot

:17:20.:17:24.

get blood out of a turnip, you can't constrict public sector

:17:24.:17:29.

activity, in the face of private restriction, and expect growth to

:17:29.:17:33.

occur, because a confidence fairy appears on your shoulder. The

:17:33.:17:37.

people who have put out all this money, and demanded 100 cents on

:17:37.:17:41.

the dollar, at zero inflation, so their investment will never be

:17:41.:17:45.

rewarded in any shape or form, all they are doing is narrowing and

:17:45.:17:49.

narrowing the pools of future investment. Bill Clinton speaking

:17:49.:17:53.

just outside London a little bit earlier today. Joe Lynam is here to

:17:53.:17:58.

take us through some of the new thoughts. There is some quite

:17:58.:18:04.

interesting zeitgeist words popping up here. The pan-European deposit

:18:05.:18:09.

grouornity, what do they mean by that -- guarantee, what do they

:18:09.:18:12.

mean? This is discussed in the European body politic. It is

:18:12.:18:20.

discussed at the highest levels of the ECBT means you collectively

:18:20.:18:26.

guarantee savers' deposits. If a bank goes bankrupt in one country,

:18:26.:18:34.

the saver will get the money back. The idea that the European and --

:18:34.:18:40.

the UK would bail out different people's savers, it would likely to

:18:40.:18:44.

be Germany. It will be mentioned at the informal summit tomorrow.

:18:44.:18:47.

we talk about project bombs, what is that about? That is the other

:18:47.:18:51.

big thing. The markets got very excited about that today. Mostly

:18:51.:19:00.

because project bomb sounds a bit like -- project bonds sounds a bit

:19:00.:19:04.

like eurobonds, they will fund things like rail and infrastructure.

:19:04.:19:09.

They want to use the European Central Bank to leverage money

:19:09.:19:12.

already there to leverage those projects and stimulate growth. That

:19:12.:19:15.

is going along the lines of Francois Hollande, who is having

:19:15.:19:18.

the first council meeting tomorrow evening. Do you get the sense

:19:18.:19:24.

either of these will go ahead? Project bonds definitely L and the

:19:25.:19:34.

pan-European guarantee will be whispered over the can pays. The

:19:34.:19:37.

collective pooling of euro debt, the Germans are against that, and

:19:37.:19:41.

they have resisted proposals from the European Commission and nine

:19:41.:19:47.

months later implemented them. former Greek Prime Minister, George

:19:47.:19:53.

Papandreou was in London for the Google zeitgeist conference, he

:19:53.:19:57.

spoke exclusively to us. What chance is there of Greece

:19:57.:20:01.

staying in the euro? The Greek people, in the massive majority,

:20:01.:20:06.

are in favour of staying in the euro. Polls say 75%. Of course,

:20:06.:20:10.

that does mean we have to follow a difficult programme. There may be

:20:10.:20:15.

some changes in this programme, but not huge margins of change.

:20:15.:20:19.

that's depending on those parties taking the, the parties during the

:20:19.:20:24.

election, who wish to produce the austerity plan, and push it through,

:20:24.:20:30.

winning, Syriza looks as if it will may be on target, on the 17th of

:20:30.:20:36.

June elections, to be the one that holds the key. If they hold the key,

:20:36.:20:40.

no austerity? We have to make a choice, obviously the Greek people

:20:40.:20:46.

in previous elections vented a lot of anger, despair, pain, because it

:20:46.:20:51.

has been very painful in Greece, I would say we have lost a lot of our

:20:52.:20:56.

income. GDP has gone down, in a very short time, not only because

:20:56.:20:59.

of Greece, but a wider recessionary situation in Europe. And that, I

:20:59.:21:04.

think, was expressed, not that Greeks don't want change, Greeks do

:21:04.:21:07.

want change. Of korts, in Greece, if there are parties -- of course,

:21:08.:21:11.

in Greece, if there are parties that don't want to do this, and

:21:11.:21:15.

think it will be easy that you can have your cake and eat it too, that

:21:15.:21:19.

will push us towards the exit. as David Cameron is saying, it will

:21:19.:21:23.

be a referendum on the euro, is this election essentially a

:21:23.:21:26.

referendum on the euro? I had proposed the referendum. Elections

:21:26.:21:31.

are different. It will, of course, be in way ways a referendum, but

:21:31.:21:35.

not a real one. When you have a number of parties, Syriza is one of

:21:35.:21:41.

them, it is easy to say, let's have our cake and eat it too.

:21:41.:21:47.

That's a very nice proposal, but it's outside of reality. When you

:21:47.:21:50.

suggested a referendum, you were not backed by other European

:21:50.:21:58.

leaders, most notably President Sarkozy. If you had been backed and

:21:58.:22:01.

there was a referendum, would Greece be in this mess now? There

:22:01.:22:05.

would have been a clear answer, that is very democratic. The Greek

:22:05.:22:09.

people would have decided. They would have owned whatever decision

:22:09.:22:13.

we would have made. Why was Sarkozy particularly against it? Again, I

:22:13.:22:17.

would say, to go to the referendum, I believe even then the Greek

:22:17.:22:22.

people would have said, yes, in favour of remaining in the euro,

:22:22.:22:25.

with a package, which we then negotiated with the European Union.

:22:25.:22:29.

I really don't understand, there were a number of reasons, possibly

:22:29.:22:33.

he was against this referendum, that didn't help my position, of

:22:33.:22:38.

course, in Greece. Of course now many people are um can go around to

:22:38.:22:42.

say this is something that -- are coming around to say this is

:22:42.:22:45.

something that should have happened. Does that mean you were deposed by

:22:45.:22:50.

Merkel and Sarkozy? I wouldn't put it that way, that is very, very

:22:50.:22:57.

harsh. That is a harsh decision. I think it was, what we have in

:22:57.:23:02.

Europe, I think, is Europe has to be managed in a more open,

:23:02.:23:06.

democratic way, where we bring in our citizens to own this process.

:23:06.:23:10.

Europe has to become much more a construction by the citizens.

:23:10.:23:15.

Germany have to behave differently? The Germans, they put up a lot of

:23:15.:23:19.

money, but if we had put up this money in a different way. For

:23:19.:23:26.

example, to create eurobond, to create a stronger firewall in the

:23:26.:23:31.

markets, to support growth, to give more time, and I'm very glad to now

:23:31.:23:36.

Mr Hollande, President Hollande in France, just reading with the new

:23:36.:23:42.

leader of PASOK, saying let's give Greece more time. You back that?

:23:42.:23:47.

do, and I want eurobonds, this is something I have been talking about

:23:47.:23:52.

since 2009. Two questions in one, what happens if the election

:23:52.:23:57.

doesn't go your way on the 17th of June, and you will eventually loaf

:23:57.:24:01.

the euro, and presumably you will default like Iceland and Argentina.

:24:01.:24:05.

The second question, what happens to the rest of Europe? The Greek

:24:05.:24:10.

people don't want to leave the euro, it gives securities, even with

:24:10.:24:16.

difficulties. If we leave the euro, I can tell you it isn't like

:24:16.:24:19.

Argentina, they were pegged to the dollar, we are not pegged to the

:24:19.:24:24.

euro, we ous it in every day life, in our contracts and banks, this is

:24:24.:24:29.

what we have. To change the euro would mean a huge reorganisation.

:24:29.:24:33.

But at the same time there would be a bank run, people would pull their

:24:33.:24:39.

money out. If the drachma comes in and we devalue three or four times,

:24:39.:24:42.

price also go up and we will destroy our economy. Maybe that

:24:42.:24:46.

would be better for the rest of Europe? For the rest of Europe I

:24:46.:24:52.

think that would be a negative precedent. What will happen when

:24:52.:24:58.

people start to say, Greece did this, you know, why not Portugal or

:24:58.:25:01.

another country. I don't want to call flames, because it becomes a

:25:01.:25:07.

self-full -- names, but it becomes a self-fulfiling prophesy. Who

:25:07.:25:11.

knows, somewhere down the line another country does what Greece

:25:11.:25:14.

has done, that means that the markets will not invest in those

:25:14.:25:18.

countries. We have to be able to say this is a stable currency, it

:25:18.:25:21.

won't break up. We have to make decisions, not in Greece, but in

:25:21.:25:26.

Europe also, that we do want to create the necessary structures to

:25:26.:25:30.

make sure this currency is a currency that can stay alive. And

:25:30.:25:36.

it can, but we have to make those decisions. Thank you very much.

:25:36.:25:39.

The John Lewis partnership model has come a long way since 1928,

:25:40.:25:44.

when it was formed as a way of heading off rising communist

:25:44.:25:48.

sentiment. It has earned its place in British psyche as the cuddley

:25:48.:25:53.

face of capitalism. Hailed by the Prime Minister as a responsible

:25:53.:25:57.

business model. It is shared or owned by 80,000 members of staff.

:25:57.:26:02.

Is it the panacea the economy is crying out for, could it be adopted

:26:02.:26:06.

more widely. I will ask the John Lewis chairman

:26:06.:26:14.

directly in a moment. First, Allegra Stratton.

:26:14.:26:20.

Waitrose in well-heeled Marylebone. Oysters, ready to go, a stand

:26:20.:26:24.

devoted to the different brands of pink, yes pink, champagne. Its

:26:24.:26:29.

relevance to the rest of Britain may seem limited, but this Waitrose,

:26:29.:26:33.

and its mother shop, John Lewis, is a blueprint for how to run public

:26:33.:26:40.

and private realms.. Today in places across the mini-empire will

:26:40.:26:44.

explain some of the lines, including blue berries. Running a

:26:44.:26:49.

shop, you don't know what is happening, the sun is shining, we

:26:49.:26:53.

are selling 100% more of strawberries and rasberries than if

:26:53.:26:57.

the sun wasn't shining. You have to respond to, that and bring someone

:26:57.:27:04.

here who knows about that as well as working in wine and all sorts.

:27:04.:27:11.

Blue berries powers the sales and the in turn that powers the

:27:11.:27:17.

powerhouse. I have come in and done extra hours to make the sandwiches.

:27:17.:27:23.

I have. Do you get more money? you do the thing it makes the place

:27:23.:27:30.

run smoother and making everybody happy, us happy, and the customers

:27:30.:27:36.

happy. The Government have been shopping for ideas at John Lewis

:27:36.:27:41.

for a long time. They like the idea of shared employee ownership, that

:27:41.:27:47.

employees here have a meaningful stake in the economy. They believe

:27:47.:27:50.

-- company, they believe it could work in the public sector and the

:27:50.:27:54.

private sector to push forward a different form of capitalism. There

:27:54.:28:00.

are those who say it is inexactly applied, and that the John Lewis

:28:00.:28:06.

model has never knowingly been understood. Charley Mayfield is the

:28:06.:28:11.

chairman of the John Lewis group, he's leading us through the

:28:11.:28:15.

plumbing of the group. He explains the political attempts to

:28:15.:28:20.

appropriate it. The Kay John Lewis's name is being used, it is

:28:20.:28:24.

shorthand for different kinds of ownership. I'm very pleased there

:28:24.:28:31.

is interest in a different kind of ownership, there is a risk in that,

:28:31.:28:35.

people oversimplify it, and the message is, this is all about the

:28:35.:28:40.

John Lewis partnership model. Shorthand, but it should be

:28:40.:28:45.

accurate, can a John Lewis model be transplanted into the running of

:28:45.:28:49.

public serves? I have been to some of the pilots, NHS schemes. You are

:28:49.:28:54.

talking about people trying to do a good job, and when you create

:28:54.:28:58.

around them a culture and give them the right information and

:28:58.:29:03.

empowerment to do that job well, they do start preparing better.

:29:03.:29:09.

Here you have everybody talking about getting an 80% bonus, that

:29:09.:29:13.

fodback mechanism isn't there in public services. -- feedback

:29:13.:29:16.

mechanism isn't there in public services, people wanting to do a

:29:16.:29:21.

good job is always there.? profit sharing we do here, is very

:29:21.:29:25.

important. But is it the one thing that motivates everybody every

:29:25.:29:30.

single day. Certainly it is not the only thing. Up on the seventh floor

:29:30.:29:35.

is what they call the partners' dining room, there partners explain

:29:35.:29:39.

the motivation. You understood the other people out there are all your

:29:39.:29:43.

partners, you all work as hard. You do give more. Do you work overtime?

:29:43.:29:48.

Yes, I do. If need be. They get a bonus linked today their

:29:48.:29:53.

company's performance, it goes some way to blunting the disparity

:29:53.:29:58.

between their wage and the chairman's, a differential of 60-1.

:29:58.:30:03.

Do you think it will go down beneath 60? I think it is important,

:30:03.:30:07.

we can't ignore the market we are in. We have to attract people into

:30:07.:30:11.

the partnership and pay them to do so. I'm comfortable with the policy.

:30:11.:30:14.

What is happening since it was set is the rest of the market has gone

:30:14.:30:18.

away from us, and we haven't moved our position. I don't feel the need

:30:18.:30:22.

to move our position, I think we pay people enough, and when you

:30:22.:30:26.

come to work for the partnership it is about more than just pay.

:30:26.:30:31.

getting from the ideas warehouse to people's homes, it has not been a

:30:31.:30:34.

simple process of click and collect, at first the emphasis was on the

:30:35.:30:40.

public sector and what lessons the John Lewis model will have for that.

:30:40.:30:48.

Except the public sector doesn't make a profit, so it was felt to be

:30:48.:30:51.

inproper inappropriate from the model. Many feel a private

:30:51.:30:56.

partnership is more appropriate. Critics of rolling it out across

:30:56.:31:02.

the economy point out at the extreme end Lehman Brothers and

:31:02.:31:06.

Enron fitted this model. You are exactly saying these shares need to

:31:06.:31:10.

be locked into a company, so people, if a company was looking like it

:31:10.:31:15.

was going down, those people's entire livelihoods, their jobs

:31:15.:31:21.

would be lost or any assets or share they had would struggle?

:31:21.:31:25.

model works extremely W one of the characteristics that makes it

:31:25.:31:28.

powerful for us, is people's interests are locked into the

:31:28.:31:35.

business, now and in the future. I don't think we will go bust, but

:31:35.:31:40.

we actually run the business on the basis that never happens. Today the

:31:40.:31:45.

partnership has 80,000 partners in it, when it was founded, it only

:31:46.:31:50.

had 500. We were comparatively, a relatively small business then. And

:31:50.:31:53.

we have grown, without external shareholder investment, to being

:31:53.:31:56.

what we are today. That has happened because we have had to

:31:56.:32:00.

rely on our performance, and latterly we have been able to

:32:00.:32:03.

borrow from banks and other people as well. But there have been times

:32:04.:32:07.

during our history, where partners have said we will forego bonus this

:32:07.:32:11.

year, or two or three years, because the business is going

:32:11.:32:15.

through a difficult patch. There is instances where people have been

:32:15.:32:19.

asked to put money into the partnership, that was after the war.

:32:19.:32:25.

It can gobble your money, as a partner or customer, but it remains

:32:25.:32:31.

politicians' favourite shop. Charley Mayfield has joined us in

:32:31.:32:37.

the studio, the chairman of John Lewis. We have the CEO of a high-

:32:37.:32:45.

tech company, Thank you all of you for coming in. Norman Lamb, can the

:32:45.:32:49.

rest of British business learn from that kind of partnership model. We

:32:49.:32:53.

know that Nick Clegg, your leader, has been very keen on this? I think

:32:53.:32:57.

it is an immensely pour powerful concept. If you give people a stake

:32:57.:33:01.

in the enterprise where they work, it is not rocket science, but they

:33:01.:33:04.

are likely to be more committed to it, give them some responsibility.

:33:04.:33:11.

It is likely to drive productivity gains. All the studies show

:33:11.:33:17.

employee-owned businesses perform better, particularly in the smaller

:33:17.:33:21.

sized businesses. Some business schools have shown to be more

:33:21.:33:24.

resilient through difficult economic times and more profitable.

:33:24.:33:31.

This is a more powerful concept. And it is try to unlock the

:33:31.:33:35.

potential of it in the economy. Surely it must feel they are coming

:33:35.:33:39.

to you and talking about the John Lewis model because we are in

:33:39.:33:42.

desperate times now? I don't think it is just because we are in

:33:42.:33:45.

desperate times. What has happened is people are having a re-think

:33:45.:33:50.

about how to run and own companies. What we have had in the UK for a

:33:50.:33:56.

long time is a real monoculture, where people focus on a plc form of

:33:56.:34:00.

ownership: that is not the same in other successful markets. There is

:34:00.:34:03.

now a welcome interest in different ways to own and run companies, and

:34:03.:34:08.

if we are an example of that, that is obviously something I'm pleased

:34:08.:34:14.

about. Can you give more than an example, can you be a blueprint?

:34:14.:34:21.

I'm nervous about saying to people, take on the way we run our business.

:34:21.:34:26.

It may not be their cup of tea. Companies are successful if they

:34:26.:34:31.

really engage their people, one way is to give them a an ownership

:34:31.:34:36.

stake, and create the structures and culture that makes them feel

:34:36.:34:39.

truly engaged and empowered and rewarded for their efforts.

:34:39.:34:44.

wouldn't you endorse it, you saw happy workers making sandwiches

:34:45.:34:50.

there, what further evidence do you need? John Lewis is a specific

:34:50.:34:54.

treasure in the economy. It was founded as a family business for 56

:34:54.:35:00.

years before being mutuallised. The two key features absent from any of

:35:00.:35:04.

the Government mutuallisation so far, is the idea of the trust. It

:35:04.:35:09.

cannot be demutuallised. That is what we are proposing with the Post

:35:09.:35:13.

Office, the idea of a mutually owned Post Office network could be

:35:13.:35:15.

really powerful, delivering services in the public interest,

:35:15.:35:19.

and that model locked in for the long-term. If you look at Germany,

:35:19.:35:25.

for example, where the workers also took a pay cut in the middle of a

:35:25.:35:29.

boom to restructure the corporate governance there, it is worth

:35:29.:35:34.

looking at a balance of interest in that corporate governance between

:35:34.:35:38.

workers and leaders. Do you think it still applies to have winners

:35:38.:35:42.

and losers in capitalism? That is just a fact, I don't think that

:35:42.:35:47.

will ever change. The question is can we reduce, can we make it more

:35:47.:35:53.

equitable, and make it some how that the loss is not as desperate.

:35:53.:35:58.

And the people who are winning still have a stake in the outcome

:35:58.:36:06.

to create a win-win-win. In the businesses with capital and

:36:06.:36:10.

venture-backed businesses, with the IPO of Facebook, and the sale of

:36:10.:36:14.

autonomy of Hewlett Packard not so long ago. Every time in the

:36:14.:36:19.

technology world a big win happens, what happens is a lot of money make

:36:19.:36:23.

money, some to set up her firms, so the to invest in other businesses,

:36:24.:36:27.

others have lots of money to do good things with that money as well.

:36:27.:36:31.

There is lots of ways you can win. But capitalism as a tool, yeah,

:36:31.:36:36.

some people will win and some people had lose, that doesn't mean

:36:36.:36:42.

even, hey I have lost, I have had to dust myself off and go back out

:36:42.:36:45.

there again. You are smart if you learn when you lose. It is riot,

:36:45.:36:50.

got the lesson, how can -- it is right, got the lesson, how can I

:36:50.:36:55.

share it. How do you put it into practice, what are the things from

:36:55.:36:59.

within Government you can do? you discover is there are all sorts

:36:59.:37:04.

of barriers, one of them is a complete lack of awareness for the

:37:04.:37:08.

potential for it. We are looking for the right to request, giving

:37:09.:37:12.

employees the right to request their companies set up an employee

:37:12.:37:17.

share scheme, not forcing, but asking firms to consider it. It is

:37:17.:37:23.

not very scary? It gets the debate going and raises awareness, both

:37:23.:37:27.

amongst employees and the companies that receive it. Also looking at

:37:27.:37:32.

the idea of a single company model which could be taken off the shelf

:37:32.:37:36.

and employed when someone wants to set up a business. Is that right?

:37:37.:37:40.

The key thing is which is engaging the energy of the work force.

:37:40.:37:44.

is the key. Then it is the long- term stable relationships within

:37:44.:37:48.

the organisation. It can work in both the public sector. The John

:37:48.:37:52.

Lewis model is only one variant of that. I think it is trou, that

:37:53.:37:58.

there has been this monoculture -- true, that there has been this

:37:58.:38:03.

monoculture. If you are an enprepen you are in, you are probably not

:38:03.:38:08.

aware -- enprenen you are in, you are probably not aware of it, and

:38:08.:38:11.

the advice is not there. The regulatory system and the tax

:38:11.:38:18.

system, actually, current, disincentivise people from doing

:38:18.:38:24.

this. You brought in tax breaks as a thought, now you are reviewing?

:38:24.:38:26.

The Chancellor announced in the budget there would be a Treasury

:38:26.:38:31.

review, that is a good start. a slow start, isn't that the

:38:31.:38:34.

trouble with any sort of mutual t slows everything down? It won't go

:38:35.:38:39.

on for that long. We want to get it right and make sure we get the

:38:39.:38:43.

incentives right to ensure we can make it happen. When a business

:38:43.:38:48.

owner is want to go retire, succession is a key moment to

:38:48.:38:52.

create an employee and own business, they want to leave a legacy. The

:38:52.:38:55.

tax breaks that might be available at that point might be critical to

:38:55.:38:59.

make that happen. Another part of the trend towards ownership and

:38:59.:39:03.

having a stake in the outcome is about the fact that more and more

:39:03.:39:06.

young people are setting up their own businesses. That is part of the

:39:06.:39:10.

same trend. People want to feel the ownership, but be the owner, they

:39:10.:39:17.

are willing to do that. Why aren't there John Lewises all over the

:39:18.:39:22.

place, you say lack of awareness, that isn't it? You don't have to go

:39:22.:39:27.

back very far to a time when there were many more alternatively owned

:39:27.:39:32.

businesss in the UK and the United States. Up until about the 1970s,

:39:32.:39:39.

80% of financial institutions were in some kind of mutual interest.

:39:39.:39:42.

They demutuallised and you can see what happened as a consequence.

:39:42.:39:49.

Something interesting is the culture of ownership. The great

:39:49.:39:53.

question is how do we get growth and a form of acceptable capitalism.

:39:53.:39:58.

The tools people look to are regulatory ones and others. In my

:39:58.:40:01.

experience, regulation almost always comes second to culture. In

:40:01.:40:05.

our business, we have 80,000 people in working in Waitrose and John

:40:05.:40:09.

Lewis. How it works is those 80,000 people own the business, and they

:40:09.:40:15.

work a bit harder every single day. It is a powerful and cultural model.

:40:15.:40:20.

Let's talk about that, people have fallen out of love with big

:40:21.:40:24.

business, big angry capitalism? biggest trend out there is not big

:40:24.:40:29.

business, it is setting up your own business. Not looking for a job,

:40:29.:40:33.

but creating your own job. Individual capitalists, and bes

:40:33.:40:38.

your on boss, by kids in their -- being your own boss, kids in their

:40:38.:40:41.

20s can have a swing at it and start their own business. Do you

:40:42.:40:46.

think this can work in public services, if we take it out of the

:40:46.:40:52.

private spear, can you put it into health? There would have to be a

:40:52.:40:56.

significant change. One of the incredible, durable successes of

:40:56.:41:02.

John Lewis, is to be contrasted with Northern Rock, the northern

:41:02.:41:10.

counties business established before that, embedded in the north-

:41:10.:41:15.

east. Within 12 years of demutuallisation was a basket case.

:41:15.:41:18.

Capitalism puts pressure on the financialisation of the assets.

:41:18.:41:22.

That is why the idea of a trust is huge. In relation to public

:41:22.:41:28.

services I go to a different model, a third, a third, a third. A third

:41:28.:41:31.

workers, a third local authority or state. Would you like to see this

:41:31.:41:36.

applied to public services? could be immensely powerful, you go

:41:36.:41:40.

to central Surrey health, where they have services, and every

:41:40.:41:43.

employy has a stake in the organisation. They have the ethos

:41:43.:41:48.

of the public sector, but they have the fleet of foot that the public

:41:48.:41:53.

sector doesn't have. Some may think, privatisation by the back door?

:41:53.:42:02.

isn't, it is all about getting the best out of your staff. If you can

:42:02.:42:07.

empower people and give them responsibility then it will help.

:42:07.:42:11.

think it is true, and I share the ownership of my business with my

:42:12.:42:17.

management team, it incentivises them. We are not just employees and

:42:17.:42:21.

employ ers, we are sit ens in a market place and an economy, when

:42:21.:42:25.

business is -- citizens in a market place and the economy, and when

:42:25.:42:29.

business is good it benefits all of us. It is true but not sufficient

:42:29.:42:32.

to say if you give ownership to everybody, the business will

:42:32.:42:36.

therefore be more profitable. Most of the time it will, but it is not

:42:36.:42:39.

necessarily true that. I want to talk about the climate

:42:39.:42:44.

you feel we are in now. Firstly, economic, and is it an anti-

:42:44.:42:49.

business climate at the moment. Is that the vibe you are getting?

:42:49.:42:52.

of the conundrums is, when people talk about business as a third

:42:52.:42:55.

person, they will say bad things about it. When they talk about the

:42:55.:42:58.

business they work for, they are proud of it and will say good

:42:58.:43:02.

things about it. There is a mismatch there. This is a real

:43:02.:43:05.

issue about. We have clearly got to get the economy growing. One of the

:43:06.:43:08.

reasons I'm pleased this ownership discussion has come on to the table

:43:08.:43:13.

and is a hot area for debate, is because it can play a part in

:43:13.:43:17.

growth. As was said, one of the interesting things is employee

:43:18.:43:21.

ownership is shown to be best suited in small and medium sized

:43:21.:43:25.

enterprises, some of the ones where we will need to see most of the

:43:25.:43:28.

employment coming from going forward. Do you think the old model

:43:28.:43:35.

is dead. Do you think top-down business models are basically pre-

:43:35.:43:39.

2008? I don't think you can say one model will always be superior to

:43:39.:43:44.

another. The point is, there could be a greater peculiarity of own

:43:44.:43:53.

inship in the UK -- plurality of ownership in the UK. We are re-

:43:53.:43:57.

thinking capitalism now? It is about corporate governance and the

:43:57.:44:01.

way the work force is represented. On the board of John Lewis there is

:44:01.:44:05.

five of them representing the partnership councils, five are

:44:05.:44:08.

selected by you, and there is a working out of the common good.

:44:08.:44:12.

That can work independent of ownership as it does in Germany.

:44:12.:44:15.

There are issues, I would like to see a living wage for the

:44:15.:44:19.

contracted out cleaners and them to be included in the John Lewis

:44:19.:44:21.

partnership model. Is that something the Government would have

:44:21.:44:26.

to take on, would that be part of it? I'm interested in what Norman

:44:26.:44:30.

Lamb is saying. What the Government hasn't done so far, and the build

:44:30.:44:34.

up to the Post Office is not reassuring, I'm pleased to hear

:44:34.:44:40.

about the asset logs, but there has been the selling off of local post

:44:40.:44:44.

offices. Those are individual, private businesses, and within

:44:44.:44:47.

Royal Mail there will be employee ownership.

:44:47.:44:51.

What do you need to see from the Government for this to push

:44:51.:44:54.

further? Three things that are essential, the first is endownment,

:44:54.:45:00.

that the assets are transferred, in perpetuity, for the nation, to the

:45:00.:45:06.

stakeholders. The second, is this trust, which is that it can't be

:45:06.:45:09.

then sold off. Mutuallisation, as with Northern Rock, would be

:45:09.:45:13.

another form of financialisation and privatisation. The third thing

:45:13.:45:16.

is the corporate governance structure so the funders, the

:45:16.:45:21.

workers and the users can negotiate a common good together for much

:45:21.:45:25.

loved institutions, like the Post Office and the BBC. Will you do

:45:25.:45:28.

that? With the Post Office we are doing that, embeding that model so,

:45:28.:45:32.

it will always have to act in the public interest, but we will give

:45:32.:45:36.

everyone within the Post Office network. The sub-postmasters and

:45:36.:45:40.

the employees, a stake in the business. Interestingly what you

:45:40.:45:46.

were saying. We need it within the governance. I ThinkBroadband there

:45:46.:45:53.

is a lot of -- I think there is a lot of common broadband T can be

:45:53.:46:03.
:46:03.:46:05.

really effective. -- a common brood bank that can be -- a common thread.

:46:05.:46:09.

You would like to see it in health, with incentivised bonuses for those

:46:09.:46:14.

who do well? Let's be open minded. We have a real challenge, we have

:46:15.:46:18.

to make the money go further with public services, this is an

:46:18.:46:23.

enormous challenge for the future, particularly with an ageing

:46:23.:46:28.

population. This can unlock productivity, and can change the

:46:28.:46:31.

culture. It is also that workers have knowledge of the details of

:46:31.:46:34.

corporate information. And so there is a public negotiation of strategy.

:46:34.:46:41.

That is the vital thing. How do you get over the fact that if something

:46:41.:46:48.

is too successful, we talked about the mutuallisation a decade ago,

:46:48.:46:51.

things demutuallise. They don't have to. One of the key successes

:46:51.:46:54.

of the partnership rests on the fact that our interests are only

:46:54.:46:59.

served by how we run the business. There is something about ownership

:46:59.:47:02.

which has come to me too much -- come to mean too much about when

:47:02.:47:06.

you sell something, you transfer ownership, rather than ownership as

:47:06.:47:10.

being something you do to make things better. Our business is all

:47:10.:47:20.
:47:20.:47:45.

about that. Let me whisk you That's all from Newsnight tonight,

:47:45.:47:55.
:47:55.:48:16.

Good evening, another very warm today to come for many through

:48:16.:48:19.

tomorrow. Subtle changes, a lot more cloud to begin with, for

:48:19.:48:22.

instance. Especially round the western coasts, mist and sea fog,

:48:23.:48:27.

the sea fog we see developing across eastern areas could linger

:48:27.:48:31.

some what. Inland the cloud could break up. We could see the cloud

:48:31.:48:37.

lift to higher levels. By the time we get to the afternoon isolated

:48:37.:48:41.

and well scattered thunderstorms. They will only hit one or two of

:48:41.:48:46.

you. Most of you will stay largely dry. The temperatures will be

:48:46.:48:50.

limited around the coast. Sea breezes developing. Parts of

:48:50.:48:54.

Cornwall and parts of Wales out in the west, we could see the sea fog

:48:54.:49:00.

push in every now and again in the far Weston of northern England. For

:49:00.:49:04.

Northern Ireland brightens up a bit. Sunnier as we saw through Tuesday

:49:04.:49:08.

afternoon, lots of sunshine through the bulk of Scotland. Mist and sea

:49:08.:49:12.

fog out to the coast, one or two isolated showers. The contrast

:49:12.:49:16.

between Wednesday and Thursday on the charts for northern areas.

:49:16.:49:21.

Temperatures, if anything, cloim a degree or two, as they will do

:49:21.:49:25.

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